Tag Archive | "VIX"

How Constant Maturity Indexes Can Mislead You

Monday, December 9, 2013


A constant maturity index of implied volatility provides a point estimate for IV at a specific time to expiration – for example, 30 calendar days – by interpolating from the implied volatilities of the nearest series of listed options. Constant maturity indexes of implied volatility are valuable because they allow like-for-like comparisons of different periods in time for one security and for cross-sectional comparisons among securities that may not have listed options in the same expiration months. The most well-known constant…

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…

The Good News About Correlation

Sunday, August 18, 2013

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High implied correlation is a like an ongoing murmur of doubt about the ability of individual equities to trade on their own fundamentals. In “Two Themes to Watch in 2013” and “Three Reasons Equity Calls are Inexpensive,” I noted that one of the longest-lasting effects of the financial crisis was the high level of equity correlation implied by options on S&P 500 constituent stocks. At this time of the year in 2011 and 2012, the next-nearest CBOE implied correlation

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…

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…

The VIX short squeeze that wasn’t

Sunday, March 3, 2013


Since early 2012, hedge funds and other traders have been short S&P 500 volatility via VIX futures in sizes not seen before. A story from IFR was syndicated across Reuters last week with a rather provocative lede: Hedge funds have levered up their short plays on VIX futures to such extreme levels that the market is poised for a significant short squeeze. For context, here is the positioning in VIX futures by non-commercial traders since the product was listed…

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

The Apple VIX and Some Applications

Thursday, December 13, 2012


I got the chance to chat yesterday with Phil Pearlman of Stocktwits for Reuters TV. We were talking about VXAPL, the CBOE’s application of the popular VIX methodology to AAPL options. Here are some additional points building on the ideas we covered there. First, while VXAPL moves broadly in sync with equity index implied volatility, the idiosyncratic moves in the stock cause VXAPL to diverge at times. That makes it worth watching: this and the other…


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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