Posts Tagged ‘CBOE Market Volatility Index’
Well, March was an eventful month. We had the world’s third-biggest economy suffer a massive earthquake and tsunami followed by an ongoing nuclear emergency. If that was not enough, the massive unrest in the Middle East has continued to spread. NATO is bombing the Libyan Army currently.
Finally, the problem children of Europe are seeing the CDS on their debt spike to new highs. We got an initial sell-off, but since Japan has seemed to stabilize, the SPDR S&P 500 ETF (SPY) is now higher than it was on March 11 – the day of the earthquake, and within spitting distance of its February highs. Likewise, after a quick spike in the CBOE Market Volatility Index (VIX), we are now back to a VIX reading around 18. (more…)
Tags: Advanced Options Strategies, CBOE Market Volatility Index, Collars, Diversification, Hedging, Iron Condor, Options Strategies, options trading, Protective Puts, Stock Replacement, VIX
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Monday, February 14th, 2011
Chart Source: Bloomberg
When a stock price plummets, many sage old traders may warn, “Don’t try to catch a falling knife!” This adage refers to a rookie trader’s mistake of buying a falling stock and hoping easy money can be made before flipping out of it when it (again, hopefully) bounces.
Many portfolios have been crushed owning weakened shares and waiting for a stock bounce that never comes.
The same warning may be appropriate when looking at volatility. We have been weathering continued uncertain economic and sovereign debt outlook in Europe, inflation fears and interest-rate increases in China, continued high unemployment domestically, and most recently, the geo-political upheaval in the Middle East, which the U.S. stock market has largely shrugged off. (more…)
Tags: CBOE Market Volatility Index, Historical Volatility, options trading, Realized Volatility, VIX
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Wednesday, October 20th, 2010
The monthly settlement of the CBOE Market Volatility Index (VIX) October options this morning resulted in more than 300,000 out-of-the-money puts trading in the S&P 500 Index (SPX). This program of put buying is referred to as a “Carpet Bomb,” as every strike that is traded is taken into the calculation of the cash settlement of the VIX.
The volume today ran from the 725 puts to the 1,400 calls. This volume is not necessarily indicative of a desire for put hedges, but rather is likely an attempt to push the VIX final settlement price higher. Yesterday the VIX index closed at $20.63, the settlement value this morning ramped higher to 21.41 causing the 21 puts, which yesterday were in-the-money, to finish worthless.
Photo Credit: dcbprime
Tags: CBOE Market Volatility Index, VIX
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Thursday, September 23rd, 2010
I’d like to share a quick update on a large eight-part options trade we saw in the CBOE SPX Volatility Index (VIX) yesterday. A trader appears to have bought to close 23,000 October 24/26 call spreads (buying the 24 calls and selling the 26 calls) for a net debit of 60 cents.
Looking at historical data, it appears these same spreads were sold to open back in August for a credit of $1.20. Excluding commissions, the investor appears to have booked a profit of 60 cents for each call spread (the initial credit less today’s premium paid). (more…)
Tags: CBOE Market Volatility Index, Options Volume, VIX
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Don’t worry, the wicked witches from each nautical direction aren’t going to come swooping down on their broomstick, although it may feel like that now. Quadruple witching happens on the third Friday at the end of each quarter – March, June, September, and December. Most of us are familiar with regular equity options expiration, which occurs on the third Friday of every month. Quadruple witching is simply the simultaneous expiration of four different financial vehicles:
1. Equity options
2. Stock index futures
3. Stock index options
4. Single stock futures (note: not many of these trade)
I have written on this topic in the past and I thought it was necessary to address the quad-witching fear out in the blogosphere. Going through some financial blogs and even mainstream articles out there, it seems folks are blaming expiration for a major potential move in the markets.
We have been trained by the media to use the words “volatile” and “choppy” when describing options expiration (and especially triple and quadruple witching). Bloggers and people who know little about what is actually happening tend to exacerbate this misconception. (more…)
Tags: CBOE Market Volatility Index, Options Expiration, options trading, Pin Risk, Quadruple Witching, Triple Witching, VIX, volatility
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Contemplating dipping your toe into the market? If you are one of those traders who has been sitting in cash altogether or is thinking about adding to your existing positions, some options strategies may offer an alternative to buying stock outright. This may be especially true if you are feeling just “moderately bullish.”
Unless you have been hiding under a rock for the past three months, you probably know that volatility in the markets has been elevated. Now granted, that’s a pretty broad, ambiguous statement. What we can gather from that fact is that, on the average, options prices are probably elevated now when compared to February and March.
Looking at the CBOE Market Volatility Index (VIX), which is a measurement of volatility in S&P 500 Index options, we can see that in the February/March time frame, the VIX was trading somewhere between 15-18%. Over the past month or so, the VIX has held a range of 30-47%, which is more than double where is was just a couple months prior. So why do we care? (more…)
Tags: Cash Secured Puts, CBOE Market Volatility Index, Options Strategies, options trading, out-of-the-money options, put trading, short puts, VIX
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Given the current market environment, it seems like a good time to offer some quick tips for trading a volatile stock in the options market. Generally speaking, when markets are moving quickly, chances are that the options markets (as well as the stock markets) will experience wider bid-ask spreads. While this can obviously create some slippage risk in stocks, the options markets can experience a much higher bid-ask spread ratio on a percentage basis, especially if the underlying stock is thinly traded. This is in addition to potential wide swings in implied volatility that could affect options prices without the stock moving much at all.
Because options derive their price from the price of the underlying, there should be some link to the price of the underlying and the prices of the options that trade on it. While large delta options (.70+ calls and -.70+ puts) tend to more closely mimic the movements of the underlying stock, at-the-money and out-of-the-money options will typically be more susceptible to influence from changes in volatility and may have wider bid-ask spreads on a percentage basis when stocks are moving fast. (Remember that options prices are generally much cheaper than stock, but the bid-ask spreads are typically wider).
Here are some suggestions when trading in fast moving, high volatility markets: (more…)
Tags: CBOE Market Volatility Index, implied volatility, Limit Orders, Market Orders, Options Strategies, options trading, VIX
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…not to mention a way to potentially increase your probability of having a profitable trade (or a trade that loses less) based on statistics.
If you have read my notes on volatility, then hopefully you gathered some ideas on what do when volatility moves to a high or low relative state.
In my opinion, the CBOE SPX Volatility Index (VIX) at 45% represents a relatively high volatility state in the broad market when compared to past observations (being that the average volatility in the S&P tends to fall below 20%). Granted, the recent movements in the marketplace do justify higher-priced options, but some of the questions that need to be asked before you trade are:
- Will the markets continue to be volatile?
- What direction do you feel the market will move from here?
- What are key support and resistance levels?
- What sort of news/events may impact my trade?
On Friday, the 10-day volatility of the S&P 500 Index (SPX) was approximately 36% compared to 30-day historical volatility of roughly 26%. The VIX got as high as 48% Friday and settled around 40%, which is higher than the observed movements we are seeing in the S&P 500. (more…)
Tags: AAPL, Apple, CBOE Market Volatility Index, Option Trading, Options Strategies, Put Ratio Backspread, Ratio Put Spread, VIX, volatility
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Seeing as how the broad market has been moving lower for about six days now (the Dow Jones was very flat on May 17th), some traders who may have a longer-term vision or believe there will be a bounce from here may be able to use elevated volatility to their advantage. The CBOE Market Volatility Index (VIX) is a general indicator of implied volatility in the options on the S&P 500 Index (SPX). With the VIX up at almost 45%, which is a new 52-week high, options are relatively high priced compared to where they have been for the past year.
What this means for investors is that they have to be extra careful when purchasing options (calls specifically). Long options have a positive vega and volatility (reflected in the VIX) tends to decrease as stocks move higher and increase as stocks move lower (as a general rule). These fluctuations in volatility can be helpful or hurtful so traders need to be hyper-aware of their surroundings…
I say this because often, when markets are selling off sharply, some traders will want to take a long position as they hope for a rebound. After six days of selling in the Dow Jones and a two-plus standard deviation move, this thesis may be becoming more common as an increasing number of traders appear to be looking for a bounce. Of course we don’t know if and when this bounce will come and with the Dow and S&P falling below key technical levels, there could be even more risk to the downside. Typically, during market pullbacks, volatility is screaming higher. (more…)
Tags: CBOE Market Volatility Index, implied volatility, S&P 500 Index, SPX, Vega, VIX
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One thing the S&P 500 Index (SPX) seems to have lacked of late is strong afternoon momentum. If you were to look at intraday charts of the SPX going back to late April (26th), you would see the index has favored weakness into the close (in the last 30 minutes of the trading day). In fact, about 77% of the time during the past few weeks, the price of the index has moved lower as the session’s closing bell approaches.
If you look at market breadth and momentum, they too are faltering late in the day. From my experience, this is a sign of fear in the markets and is more indicative of a bearish overall sentiment as opposed to bullish. It indicates investors’ reluctance to take on new long positions into the close.
Some of this might be due to the geo-economical and political issues swirling in Europe and some might be due to the technicals themselves. Regardless, this may be a trend to pay attention to as it could lead to lower numbers in the SPX over the near term. (more…)
Tags: CBOE Market Volatility Index, S&P 500 Index, Simple Moving Averages, SPX, Technical Analysis, VIX
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