Tag Archive | "spx"

VXST, VIX, VXV, and the rest of the curve

Friday, October 11, 2013

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Rises in VIX and implied volatility in general tend to attract the attention of business reporters and other market watchers who do not usually follow options markets all that closely. I’ve seen several mentions recently, for instance, of the ratio of VIX to VXV as an indication of market stress, and some readers have asked whether I planned to write about this ratio sometime soon. The short answer is that I’ve been writing about VIX:VXV all along. The ratio of…

A Long Term Look at the S&P 500 Volatility Risk Premium

Monday, August 12, 2013


Some clients here and readers on Twitter asked for a long-term look at the relationship between the  historical volatility of the S&P 500 and the implied volatility of SPX options. The chart below shows those two time series since 1986, using a one month estimate for historical vol and the VXO index for implied vol.* All of the charts below can be enlarged with a click. The statistic in which most traders are interested is the difference between those…

How a friendlier Germany might affect options markets

Tuesday, May 28, 2013


An article published in Der Spiegel on Monday is causing quite a stir for its suggestion of a policy about-face by Germany. Angela Merkel and Wolfgang Schäuble have been viewed since the banking crisis began as inflexible and uninformed for their pursuit of fiscal austerity in the face of a balance-sheet recession. Now, it looks like domestic political heat may be causing the German fiscal ice to thaw. To come to grips with the problem, Merkel and Schäuble…

When short gamma trading is your only hope

Tuesday, April 23, 2013


From early March through last Friday, there were really only a few ways to make any profits in the S&P 500, and looking at which strategies have been working gives us a good sense for the character of this market. First, let’s take a look at price action over this period. SPX went basically nowhere: Fig. 1. S&P 500 Index, March 6 – April 18. Source: CBOE Now, trading strategies can be classified according to the source of their risks/returns, meaning…

What Should You Look at After a VIX Spike?

Monday, February 25, 2013

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Monday’s 1.9% decline in equities sparked the largest jump in the VIX since… There’s certainly some value in knowing the end of that sentence, but unless you’re avoiding all financial media, you’ve probably already read a few variations of that story. Here are some additional ways of measuring changes in implied volatility. We use some of these estimates to inform market timing strategies. First, here is the VIX shown as a percentage of trailing S&P 500 1-month historical volatility. Sometimes…

VIX Portfolio Hedging (VXH) Strategy 2012 Performance Review

Friday, February 1, 2013


A successful portfolio hedging strategy does two things: it protects against market declines, and it imposes minimal costs in rising markets. In a year like 2012, the ability to minimize hedging costs actually matters more than downside protection, and the VIX Portfolio Hedging (VXH) Strategy bested its benchmarks and peers by being more cost-effective. Let’s start with a look at how the S&P 500 and the iPath VXX ETN fared in 2012. The histograms at fig. 1 show daily…

VXV Is Way Ahead of You

Thursday, December 20, 2012


Here’s a chart I sent out to clients last night as part of our weekly update. It tracks the ratio of three-month SPX implied volatility as measured by VXV to the trailing 3m historical volatility. SPX 3-month volatility risk premium. Source: Yahoo!, Condor Options What the chart shows is that three-month options are priced at more than 1.4 times the value of the actual rate of change in stocks over the last quarter. Options are usually a bit

How to trade a stall in fiscal cliff negotiations

Thursday, November 8, 2012

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The emerging post-election consensus is that the fiscal cliff is more likely to be addressed without roiling markets. President Obama, the theory goes, is stronger politically than he was in 2011, and Speaker Boehner also has more control over the Tea Party wing of the Republican party. The new power dynamic should make it easier for moderates to find a palatable mix of revenue increases and spending cuts. This morning, John Carney mentioned an alternative view: The…

Hedging against an unclear election

Monday, November 5, 2012

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The election this week has sparked countless articles about the likely effects of an Obama or a Romney win on various sectors of the economy, but in the short term, traders should focus not on the effects of a win by one party, but on the effects of an unclear outcome for either party. The FX team at Citi recently called a disputed electoral outcome the “biggest political risk” facing markets right now: We view most of the…

VVIX and Index Option Order Flow

Wednesday, October 24, 2012


As I mentioned yesterday morning to our clients, our momentum-based VIX signal has us avoiding new short volatility and long stock positions for the moment. If we see some additional large swings in the CBOE Volatility Index (VIX) over the next few days, a volatility-of-volatility estimate I follow will also signal a ratcheting down of exposure. We can also look at the order flow in major index option products on Tuesday to gain some clarity about market sentiment. fig.…


Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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