Volatility Views

Volatility Views 131: Breaking Down VolDex, SkewDex and TailDex

Volatility Viewpoint: Today’s guest is Scott Nations, president and chief investment officer NationsShares. NationsShares and ISE have partnered on a new volatility product – Voldex. He discusses:

• Why is this methodology superior to the current VIX methodology?
• How would Voldex have performed over this crazy week period compared to VIX?
• Why do we need this product?
• Does he expect traders to abandon VIX for this or instead using it as a spreading tool?
• An overview of two new planned additional products, Skewdex and Taildex.

Volatility Review

• VIX Cash: Insane realized and implied volatility this week. Range: 14.05-19.38.
• VIX Futures: VIX cash trading at a premium to all futures except April 2015.
• VIX Options: Nearly 1 million contracts on Thursday.

Crystal Ball: Jared and Andrew guess vol recklessly.

Volatility Views 130: Talking Volatility Skew

Volatility Review: What happened last week in vol?

• VIX cash: A decent range this week. Non-farms taking the remaining juice out of the market.
• VIX options: Top OI Positions: 351,982 VIX Nov-14 20 Calls, 339,931 VIX Oct-14 17 Calls, 317,207 VIX Oct-14 20 Calls.
• Big VIX Trades: Today (Friday) paper traded 457900 VIX Oct 19 calls for $.86 & paper traded 54,997 VIX Nov 23 calls at $.94.
• Gold vol: GVZ ticking up over the past few weeks - futures options still put heavy.
• Oil vol: Continued put love in crude as well.

Volatility Voicemail: Listener questions

• Question from Crazyhorse - Can some of the roll yield problems suffered by VXX and others be solved by either 1) rebalancing on a less frequent basis or 2) trading a basked of futures as opposed to simply buying the same long term contracts every time?
• Question from Chris Hanks, Toledo, OH - Hola volatility gang and perhaps special guest. I am a frequent listener and wanted to write in to say thanks for putting out this show every week. My Mondays suck but I get a nice little pickup on my commute when I download the latest episode of Volatility Views. I do miss Don's "sold to you" attitude, but I am sure you will get him back on one of these days. No one gets as fired up about selling vol as Don S. Let me leave you with this question: Long term, which do you think will outperform - dynamically hedged spy atm straddle or dynamically hedged VIX straddle? They should be roughly equivalent but clearly they are not.

Crystal Ball: Jared and Mark make mad prognostications.

Volatility Views 129: Juicing Up BuyWrites

Volatility Viewpoint: Today’s guest is Russell Rhoads, who is a senior instructor at CBOE’s Options Institute. He’s on to discuss a new white paper, A Leveraged Portfolio Management Approach Applying The CBOE S&P 500 2% OTM BuyWrite Index.

Summary: Historically, the CBOE S&P 500 2% OTM BuyWrite Index has outperformed the total return that would be expected from passively holding a market portfolio. This outperformance occurred on both an absolute and risk-adjusted basis. Additionally, a leveraged strategy that matches 120% of the expected performance of BXY may enhance this performance with a similar risk profile to the market portfolio.

Volatility Review: The week that was

• VIX Cash - A relatively quiet week until an enormous pop on Thursday.
• VIX Futures - further developments in VIX Futures term structure.
• VIX Options - Hot Strikes: 326,209 VIX Oct-14 20 Calls, 296,305 VIX Oct-14 17 Calls & 290,453 VIX Nov-14 20.0 Calls.
• VXST Options - On a day when VIX spikes 18%, there is still no interest in VXST.
• RVX actually trading a bit on Thursday. Gold still skewing towards puts - Silver puts starting to catch a bid as well.

Crystal Ball: Brazilian elections. Could we see another India-like surge in VIX? Non-farms ahead.

Volatility Views 128: Gold Skew Palooza

Vol Review: An update on the Alibaba IPO fury. VIX cash: High: 14.53. Low: 11.73. VIX futures: September settlement at 13.03 - right in the middle of the range.

VIX options- hot strikes:

• 281480 VIX Oct-14 16.0 Calls
• 253852 VIX Oct-14 17.0 Calls
• 248014 VIX Oct-14 20.0 Calls

Top trades:

• 4.4/1 Calls over puts. Paper sells OCT 18/21 call spread 16, 020 times for $0.18. Paper buys 5k DEC 25 calls for $0.67.

VXST Top OI Positions:

• 1000 VXST 10/1 12.0 Puts
• 800 VXST 10/1 25.0 Calls
• 500 VXST 9/24 14.0 Calls

Gold/metals vol: Gold skew looking somewhat steep to the downside.

Volatility Voicemail: Listener questions and comments

• Question from John King ‏@jking321 - Could you do a show with an in-depth discussion on LiveVol vs IVolatility vs? Costs/benefits over std broker data etc. Thanks!
• Question from Indy04 - This might be a strange question but does implied volatility always exist? Are there options out there that essentially trade at their realized volatility level or some other type of riskless rate? Keep on rolling with the show. I love it. Big fan of the network.

Volatility Views 127: Diving Into Treasury Volatility

Volatility Review:

• VIX Cash: Catching a bid today as the market finally said farewell to the 2,000 Strike.
• VIX Options: Calls are trading at a ratio of 13 to 1, with the biggest trade being a buyer of the Oct 22 calls. Call/Put Ratio - 3.8/1
• VIX recalculation (part 2). CBOE Futures Exchange (CFE) announced today that it plans to launch futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (ticker symbol VXTYN) beginning on Thursday, November 13, pending regulatory review. Metals, Energy and International vol.

Volatility Voicemail: Listener questions and comments

• Question from Victor C - Do you think the failure of VXST has to do with the product being too much vol of vol for most people? Is it just too wild of a product for the mostly institutional VIX crowd?
• Question from Señor Pablo - Thanks for the show Mark, and please say Hi to Jared and Andrew for me. You guys have mentioned some of the VIX competitors in the past. It looks like we will probably get at least one of them, if not both this year. Which one, if any, do you think has the best chance in the marketplace?
• Question from AltasSmirked - What is a reasonable skew level for the SPX? At what level should I be looking to buy puts? Where should I be thinking of selling them?

Crystal Ball: Wild volatility prognosticating is in the house.

Volatility Views 126: A Big VIX Shakeup

Vol Review:

VIX Cash - A shortened holiday week. Market selling off a bit on Ukraine, after news of a cease fire. Non-farms a non-event.

Volatility story of the week - CBOE Incorporates SPX weeklies in VIX calculation starting Oct 6.

Question from Spreadjunkie - CBOE bringing SPX weeklies into the VIX calculation - Is this a game changer?

VIX Options - 4.1 Call/put. VXST. RVX - Not much going on, only 504 OI. Gold/metals volatility. Scottish independence?

Volatility Voicemail:

Question from Nick Valenti - I am glad to see you are adding more volatility products to the show including the new Russell VIX. I trade RUT and IWM options very actively and I have been watching this product with great interest. I have yet to pull the trigger on a contract, but I have been close a few times. Like a lot of people, I am still waiting for other traders to join me before I dive into the deep end of the pool. What do you think it will take to kickstart this product? What will the eventual catalyst be for this?

Comment from Johnny Mac - My Vol pet peeve is people quoting skew with a "25 delta risk reversal" - wake up people! It is a 50 delta risk reversal. Thanks for letting me get that off my chest.

Question from Nickel5 - I know Jared is a reformed iron condor trader. Do these relatively low levels of implied volatility in SPY make him want to get long some condors out there? Maybe in the Oct cycle? Also what is his view on the diagonal condor - buying longer-term guts and selling front month/weekly wings?

Crystal Ball:

Reckless prognostication of VIX, VXST, RVX and other volatility products.

Volatility Views 125: The Holiday Fear Premium

Volatility Review:

A bit more volatility this weekend as opposed to last, because of the US Labor Day weekend. Trader taking time delay/Vol out of the market ahead of the weekend? VIX Cash. Trading in the 11.24-12.73 range. VIX Options. 4.2/1 - Call/Put. Top OI Positions: VIX Sep-14 19 C, VIX Sep-14 20 C, VIX Sep-14 16 C. VXST Options. RVX Options. Metals Vol - GVZ down about a point this week. Energy Vol - Oct WTI realized vs. ICE heating oil implied intersecting.

Volatility Voicemail:

Question from Silas - Congrats to the Vol Crew on such an excellent program. I enjoy all of your analysis, particularly the addition of volatility breakdowns in other asset classes, including crude oil. Ia, starting to dabble more into these asset classes, but I am somewhat dismayed at the overall lack of tools for analyzing these products. What software do you typically use when breaking down volatility in products like curve oil? Thank you again for the fine program.

Question from George Dietrich, Baltimore, MD - Are commodities better candidates for hedging strategies such as long puts, or spec strategies such as strangles, because they typically lack the high implied volatility levels in the lowing strikes?

Crystal Ball:

An outlook for VIX, VXST, RVX and other volatility products.

Volatility Views 124: Volatility Pairs Trading

Volatility Review: Yellen and Putin both, but not collectively, having an effect on volatility. VIX futures: August settlement comes in a little more in line, as opposed to last month. VIX options: Top Strikes: Sept 19 calls, Sept 20 calls, Sept 16 calls. VXST options: A lot of activity in VXST: Aug 17 calls 1,500 contracts. RVX options.

Volatility Voicemail: Listener questions and comments.

• Question from Vizible ‏@VizibleApp - What happened to Don S.? Sorry if we missed something, but loved him on the show. Great #podcast btw!
• Question from NOVIX - I have read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be co-integrated to form a stationary series. The basic idea being to trade on the oscillations about the equilibrium value of the spread. While I understand how this is accomplished with equities, I am not sure how suitable implied volatility pairs on equity options are identified since both implied volatility series would already be stationary and so co-integration would not be required. Can someone please explain to how suitable implied volatility pairs are identified?
• Question from T. Stark - Great podcast. I cannot start my week without my dose of Volatility Views. You guys really do a great job breaking complicated stuff down so that even non-pros like myself get it. The one area where I’m still somewhat confused comes in the relationship of implied vol across an expiration month. I realize that when you say October vol is X you are referring to the at-the-money volatility. But how does that at-the-money volatility relate to the rest of the strikes? If the ATM volatility gets crushed do all the rest of the strikes get crushed along with it? Or are there scenarios where only a few strikes are impacted but the rest are not? How does this relationship work? Are there models or greek variables that explain the volatility relationship between one strike and another? Thanks again for walking this noob through this stuff. Fan for life.

Volatility Views 123: VIX Roars but VXST Whimpers

Volatility Review: The week in vol

VIX:

• Russia sends tanks into Ukraine and volatility skyrockets
• Volatility plummeted after US involvement in the Middle East.
• CBOE stock as a hedge.

VXST:

• Big moves in only 24 contracts.
• Why is this product not catching fire?

VIX options:

• Settlements coming up soon.

Metals:

• GVZ dropping earlier this week, but taking a spike recently.

Volatility Voicemail: Listener questions and comments

Question from Lawrence - You were discussing if straddle prices exceeded earnings moves on your last show. I use software called "LiveVol” that has data for the trailing eight quarters, that shows this data for every company for the first and second expiration. It also shows implied vol crush for the first and second expiration. Their software is amazing. I like to sell iron condors before earnings to get short Vol. I usually use unbalanced condors with a short delta. I feel the underlying moves down for often and more violent. If the underlying moves up, the short Vega reduces loss a bit, in addition to the post earnings crush, as longs sell their protective puts. Love the show!

Crystal Ball: Where will VIX settle?

Volatility Views 122: Goldman Straddles and Buffett Puts

Volatility Review: VIX cash range: 14.69-17.30. VIX futures trading above cash for quite a bit this week. VIX options 3.4/1 call/put ratio. Top open interest positions:

• 273,733 .VIX Aug-14 16.0 C, chg +7148
• 262,146 .VIX Sep-14 19.0 C, chg +1029
• 221,559 .VIX Sep-14 21.0 C, chg +24

VXST OI: 3037, ADV: 832, 4.2/1 call/put ratio

RVX OI: 591

Goldman analyst events study http://www.docstoc.com/docs/158693818/Goldman-Sachs from Trading-Events-Analyst-days. Studied 3,700 analyst days from 2002 to 2012. Twice as positive for stocks vs average day. Analyst days are more significant if held far after earnings. Checking in on Warren Buffett’s equity index put trade by Russell Rhoads, CFA.

Volatility Voicemail: Listener questions and comments

Question from Rueben Brooks -Listened a while back to a show you and Jared did talking about N. N. Taleb and how you were surprised that, given his long-gamma leanings, he would short the ATM straddle. I found this interview he did a while back, curious on your thoughts: http://www.fxtsp.com/education/fx-trader-interviews/834-interview-with-top-trader-nassim-nicholas-taleb.html One other thing: I was very intrigued by a show you did a while back with Chris Cole over at Artemis capital. I was fascinated by his papers and his exploration of volatility arbitrage. Do you have any resources or books you could recommend where I could learn more about this? I really appreciate all the work you do. You have been by far the best resource, and aggregator of resources, regarding options education that I have found. If you end up addressing any of this on a show, could you let me know which show so I make sure I don't miss it? I try to listen to Volatility Views, Option Block, and Options Bootcamp. Thanks for your time, -Reuben