Volatility Views

Volatility View 97: Consulting Volatility Volatility Review: So much for single digit VIX cash in Q1. VIX options call/put nearly 3 to 1 right now, hovering at record size. People still loving VIX upside - size open interest all the easy up to the Feb 60 strike. Current RVX open interest at 2700 contracts, traded 250 lot yesterday, the zealots are out in RVX. Volatility Voicemail: Comment from Jason Ungar - Hi, Mark: I hope you are well. I just heard your (latest, I think) podcast which included a question about the PUTs consistent outperformance of the BXM. I know you wanted to look into this, and I think I may be able to help. While it is tempting to ascribe the differential to the PUTs puts carrying a higher IV than the BXMs calls, there is almost invariably only a 5 point spread between the two option's strikes, and this is too narrow to capture any significant amount of skew. The actual reason for the difference is a bit more complicated and has to do with the indexes' settlement methodologies. As I am sure you know, index options settle against the Special Opening Quotation, which was instituted by the CME as a way to price expiring S&P 500 futures. The SOQ captures the opening price of all 500 components of the S&P 500, and the anomaly is that on expiration Fridays the SOQ often comes in at a premium to the cash open. The precise reason for this is unknown, but it may have to do with the action of market makers buying back the futures they used to hedge short put positions. The CME and CBOE are aware of this (see the included "Understanding the SOQ" pamphlet and note the consistent positive spread between the SOQ and the cash open and the reference to the SOQ "occasionally departing from index values".) The reason the high SOQ is relevant is that it causes the BXM to purchase expiring ITM calls at a premium and the PUT to purchase expiring ITM puts at a discount. This is compounded by the tendency of the market to open strong on expiration and then to tail off. This is good for the PUT, which is out of the market for the first two hours of trading, and bad for the BXM, which is long the market until new calls are sold beginning at 11:30 eastern. You can do an easy test to confirm this. Just line up the daily returns for both indexes (available for download at cboe.com), and note that the greatest differentials (usually in the PUT's favor) almost always occur on expiration Fridays. I have included a JAI paper on the PUT I coauthored with Matt Moran as well as a follow up article. I would be happy to discuss any of this. All the best, Jason Ungar Question from Hannibal Smith - What is the Volatility Views panels take on the recent announced VolDex product from ISE and Nations Shares? Is it a credible competitor to VIX? Crystal Ball: Heading for more of the same trouble in VIX land?

Volatility Views 96: Harvesting Volatility Risk Premium Volatility Review: An ugly, ugly day across the board for Vol. S&P down 2%. VIX settlement last Wednesday. What is it about Feb that brings out the VIX call buyers en masse? Volatility Viewpoint: Today’s guest is Scott Maidel, Senior Portfolio Manager of Equity Derivatives at Russell Investments. They discuss: Short volatility strategies & framework An update on the call overriding portfolio Why does a volatility risk premium exist? Is volatility an asset class? What are alternatives for managing portfolio volatility? Strategy construction techniques for harvesting volatility risk premium Will implied volatility underperform realized volatility in the coming months? What are some favorite tools/products/techniques for capturing implied vs. realized? How does the volatility premium in products like RVX differ from traditional S&P volatility products? The ideal use case for a volatility product like VIX/RVX? Crystal Ball: Weak China, Argentina, and worse-than-expected housing numbers, etc. has combined into a massive weight on the market, and volatility has only recently come to life. What should we expect going forward?

Volatility Views 95: When the Crazies Emerge Volatility Review: Activity review for VIX futures, VIX options, RVX and VIX-related ETPs. Extended hours working for VIX. VXST approval expected in February. The 2013 numbers are in: VIX futures 2013 annual ADV - 159K - Up 67% from 2012. VIX options 2013 annual ADV - 567K - Up 28% from 2012. SPX options 2013 annual ADV - 823K - Up 18% from 2012. Volatility Voicemail: What questions do you have for us? Comment from nrlbuild: Great to have Volatility Views back on the air...but what about Don Schlesinger? Breakin' my heart man! Keep up the good work, Ned Question from Greg: I'd been looking at the CBOE's Put-write vs. Buy-write strategy that rolls the ATM monthly options short. On the surface it appears the PW outperformed with less volatility over the last 25 years. It appears the PW outperforms over longer periods because any or all of the following: 1) Investors have overestimated future dividend payments 2) Investors have overestimated future interest rates 3) The random timing from the call or put being slightly ITM or OTM during more pronounced market moves It's important to note that implied volatility should not explain a significant difference here. Both Calls and Put values are positively correlated with volatility. If you have a taxable account and your underlying holdings are targeted to be held at least 1 year, it would seem covered call would win out due to the stock and dividend being taxed at LT rates. Put premiums and bond interest are both taxed at ST rates. Commissions are a slight advantage to the PW strategy but in the world of online discount brokerages I would think this is insignificant. Thoughts? Question from: expertmagician: I just found you! Just started using Volatility ETFs, and have never used futures or options. What is the best way to learn about various ways to hedge S&P or Russell using VIX ETFs? Great podcast! I would love to see an RVX ETF. Problem is with contango and contract roll exposure with ETFs. So, I am looking for a way to do this because I do not have the time to learn and actively trade futures or options. Crystal Ball: Outlook at VIX options, futures, RVX and other volatility products activity next week.

Volatility Views 94: We Are Back! Volatility Views is back from hiatus and in this episode, Mark is joined by Mark Sebastian and Pat Fay, Director of Listed Derivatives, Russell Indexes Volatility Review: RVX options and futures are back. Why bring them back? What’s unique to the RVX relative to the VIX? An overview/analysis of all the recent trading activity in VIX options and futures as well as VIX-related ETPs. Volatility Voicemail: What Do You Want to Know? Comment from Mr. Inc.: @Options Great to see that Volatility Views is returning to the schedule. My fav show. Cannot wait to hear it again. Question from Joseph Hill, Spokane, WA: Great episode with Russell Rhoads from the CBOE. I hope Vol Views will be back on a more regular basis going forward. I also have a question about vol trading. I like the idea of VIX options, but I am not heavily invested in S&P 500 stocks. I think something like the NASDAQ VIX for my tech portfolio and Russell VIX for my small cap. My question is - Are these products identical to regular VIX options except for a different underlying? Or do they have different calculation formulas, settlement dates, etc.? Any plans to launch a futures show? Question from SID S., Des Moines, IA: What is a good way to trade corn volatility? Do I have to do straddles on the big futures options or is there something else? Maybe a corn VIX that offers a more direct approach? Crystal Ball: Our expectation from the upcoming week in VIX, RVX, ETPs and more.

Volatility Views 93: Returning in Style Volatility Viewpoint: Mark’s guest is Russell Rhoads, Senior Instructor, Options Institute. What does The Options Institute do? What is your opinion on the massive influx of retail traders into sophisticated institutional products like VIX options? What is your opinion on this new shorter-duration VIX products? Volatility Review: Last-minute hedging activity in the broad indices ahead of the shutdown attributed to a short squeeze in volatility. Did the aggressive selling activity prior to the deadline a surprise to you? We are seeing some backwardation in the near-end of the VIX curve right now - a rare occurrence. How will weekly VIX change the marketplace? Listener Mail: What do you want to know? Question from Endzone - Will the sing name VIX products ever see the light of day Question from George Santiago, San Diego, CA - I love the volatility views program and am looking forward to its return. Mark, Don and the gang put on a very informative program. I wold like to ask a question about variance. The CFE launched a variance product several years ago that received little traction. They have since pulled it. What was the problem with that product? Do you feel the relaunched version has nay chance in the marketplace? Crystal Ball: Dangerous roads ahead as we navigate the shutdown. Watch out for another short squeeze in volatility. Eventually premium has to erode - something has to give.

Volatility Views 92: Zero Sum Game? Volatility Viewpoint: We shake it up a bit and discuss the biggest news of the week first, namely the New York Times article, "Growth in Options Trading Helps Brokers but not Small Investors." The Crystal Ball: We discuss the future of Vol Views itself. A short summer hiatus will cover the rest of June, but we're hoping to be back in July with a new and improved format, more voices, new segments, but the same Vol Views you know and love.

Volatility Views 91: Historical Lows Volatility Review: Realized volatility plummeted. NASDAQ sits at 12.06 and S&P is even lower at 10.01. Don and Mark Sebastian called it. Listener Mail: We answer listener questions. Question from Jackson Engles, Garden City, NY: When you are analyzing historical volatility, what time frame is most relevant? The past 30 days? The past three months, six months, etc.? What do you focus on in your analysis Question from Timothy VanAllen, Baltimore, MD: I hope Mark didn't lose "the Voice of Options" at his unusual activity event. I couldn't make that one, but if you guys end up doing a Vol Views 100 live, I hope to be able to attend. My question has to do with vol skew. We hear a lot about the vol smile, but nothing really exhibits it. Can you guys think of any underlyings that really spike from a volatility perspective once they move away from the ATM in either direction? Question from ATL16: Dollar/Yen is crazy lately. What's a good source for FX vol info or analysis? Question from Phil Thomas, London, ON: In what conditions would the Vol Views Squad ever consider using upside VXX or VIX calls/verticals as a portfolio hedge? Or would you always stick with the good old S&P put spread/ratio spread? Question from Mr. Pop: Quick question -- What is your favorite position for trading volatility? The Crystal Ball: Fading the short-term, buying the long-term. How long can VIX stay this low?

Volatility Views 90: Sell or Sell Not, There is no Buy. Volatility Review: The dollar hit a historic level with the Yen last week, and this has had an effect on the currencies Vol. The inversion of realized volatility, where it's higher than VIX, continues -- a rather unusual occurrence. Volatility Viewpoints: Dennis Chen. He is the co-author, along with Vol Views's own Mark Sebastian, of The Options Trader's Hedge Fund. Listener Mail: Comment from Hawkeye: In honor of May the 4th, "Buy not, sell or sell not, there is no buy." - from Don "Yoda" Schlesinger. Thanks to all the volatility masters for such a great podcast! Question from Mr. Todd: I found Mark L's comment about VXX being the #3 exchange traded product quite surprising. You guys have slammed that product frequently on this program. Why do you think it has succeeded among the entire universe of VIX ETPs? Thanks for the greats shows - when Mark "The Voice of Options" speaks I listen! The Crystal Ball: This curious situation with VIX really throws a wrench into the machine -- not sure where we go from here.

Volatility Views 89: Moving in Lockstep Volatility Review: Market up 1% after some surprise news from the non-farms report -- better than expected. We had a unique week where the market was up and VIX was up as well, for 4 days in a row! Listener Mail: Mark and Don take your questions. Comment by AsymmetricRisk on the Value of Gamma episode: Best Vol Views ever, by far, full of actionable insight. A whole new level for Vol Views. Keep up the good work. Question from Hawkeye: I just picked up Mark Sebastian's book The Option Trader's Hedge Fund. I am looking at the example where he uses a double diagonal, then "weights the vega." I understand why he wants to weight them, but I don't understand where he got the actual weight values he used from. Can anyone help? Thanks. Question from Tom B, Houston, TX: Hey Vol Viewers - My question is for Don and Bob from the Volatility Exchange. With the recent crash at the CBOE, are you guys at VolX at all concerned about putting all of your eggs in one basket when it comes to listing exclusively on one exchange? Would it be better for RealVol futures to be listed on all relevant exchanges? Thank you for this program. I look forward to it every week even though most of it goes right over my head. Mark L has the best voice in options, Mark S is a zany character and Don can recite volatility calculation like nobody's business. Keep it up! Question from Tim L, Long Beach, CA: Does anyone offer the equivalent of FLEX options for volatility? If so, would you recommend them? Question from Athelas: What did Vix traders do during the CBOE crash? SPX has many outlets but there aren't any for VIX that I am aware of. Question from Tiny Tim: Where do the Vol Viewers stand on Vol before earnings? If you're long Vol, do you get out before the announcement? If you're short Vol, do you get out after the announcement? The Crystal Ball: Implied Volatility has possibly hit its bottom. These 1% moves a day could continue.

Volatility Views 88: Reestablishing the Norm Volatility Review: Vol has spiked in the last week, going nearly as high as during the Italian elections. CBOE computers go down. How does the inability to trade VIX affect the overall markets? Listener Mail: Mark and Don will take your questions now. Question from Phil Z. - Mark, love the show! Could you explain what you, Don, and Mark S. mean when you say VIX has "roll risk"? Question from Tom S. - Do you agree with the theory of your guest that near-term S&P OTM puts are the most resilient to time decay? The Crystal Ball: VIX should stay high for a while, but will not go above 14%.