Tag Archive | "VIX"

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…

Just How Inexpensive are Options Getting?

Tuesday, September 18, 2012


Are you better off now than you were four years ago? What about one year ago? If you’re like most investors, your market sentiment has probably improved substantially. There are plenty of ways to measure investor sentiment – we could look simply at the run-up in stock prices, or use a more sophisticated metric like the level of implied correlation. In between those two estimates, we might also look at the implied volatility of stock options, measured as a percentage…

VIXH: How to Pay Through the Nose for the S&P 500

Wednesday, August 29, 2012


First Trust Portfolios L.P. recently announced the launch of the First Trust CBOE S&P 500 VIX Tail Hedge Fund, a fund designed to replicate the performance of the CBOE VIX Tail Hedge Index. The strategy is very simple. It holds stocks replicating the S&P 500 and, at the monthly VIX expiration, purchases a quantity of front-month VIX calls corresponding to the level of the VIX Index. With VIX<15 or >50, no calls are bought. With VIX>15 and <30, 1% of…

S&P 500 3-month implied volatility is extremely low

Tuesday, August 21, 2012

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The sharp decline in market volatility has directed a lot of attention to low readings in the CBOE Volatility Index (VIX). Given all of the plausible scenarios for market turmoil not that far in the future, traders have been wondering: isn’t VIX at least a tad underpriced? Nicholas Colas from ConvergEx responds:  In practice, the VIX measures expected changes in stock prices over the next 30 days.  That’s it.  It is heavily informed by recent actual volatility, as…

VIX does not care who’s watching

Monday, August 20, 2012


Joe Weisenthal and Eric Platt wonder whether there is a relationship between the level of the VIX and the number of news articles about it. “The lines are noisy,” they admit, “so this isn’t totally weird, but generally the two lines match each other, so at some point they’ll probably converge.” That’s not exactly a strident prediction, and it would be consistent with the most likely relationship, which is that news articles about VIX are a lagging or, at…

How Options Markets Have Changed Since 2008

Monday, August 13, 2012


Financial markets change along with the real economies on which they depend. This maxim applies to investing strategies and options markets, too. For example, the “fire and forget” approach to option selling that some traders favored in the pre-crisis world is no longer tenable (if it ever was). Risk appetites have shifted, order flow is moving into different products, and the cast of influential market agents is composed of different actors. As detailed in the attached video, here are some…

I guess we lost that one

Thursday, August 9, 2012


You might remember that episode in February and March of this year, when the volume in volatility ETPs spiked to new highs. The order flow caused all sorts of chatter about whether TVIX was going to obviate the usefulness of VIX futures, or even cause problems in the broader market. Never mind that, at its peak, total VIX ETN vega outstanding was never more than $300M or so. As a public service, some of us approached the issue in a…

Something Strange is Happening to Treasury Bond Options

Monday, August 6, 2012


It looks like investors are willing to pay more for options exposure to Treasury bonds than they ever have before. It is a well-known fact that, across many different markets and consistently over time, options tend to be priced today at volatility levels greater than the actual statistical volatility that occurs in the underlying asset. This phenomenon is known as the volatility risk premium (VRP). Think of an investor who wants to hedge her stock portfolio and buys some puts on…

VIX Agnotology

Thursday, August 2, 2012


In 1993, CBOE launched VIX. It’s fair to say that, at the time, most of the people who knew about VIX probably had a good idea of what the volatility index was and how it worked (since so few people knew about it). Nearly 20 years later, and despite millions of dollars spent on education and instruction, I think it’s likely that the ratio of informed VIX-watchers is much, much lower. VIX shows up on regular nightly newscasts – everyone…

How to Perform Technical Analysis on the VIX

Tuesday, July 3, 2012


Just kidding: you can’t.  By “technical analysis” I mean the practice of drawing inferences about likely future prices based on the visual patterns displayed on a chart. We can exclude rules-based, objective strategies here: those are beyond reproach because they can easily be verified. For example, “buy asset x when the n-period moving average crosses above the m-period moving average” is a strategy we can test historically and rigorously – a computer can do much of the hard work of…


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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