Computing Volatility Indexes With VIX Futures

Using the Cboe’s VIX futures historic data and interpolations/extrapolations for contracts that were not traded I developed a continuous time series for 7 months of VIX futures settlement values.   I then used that data, plus treasury bill data to compute the indexes that underly the popular long and short volatility Exchange Traded Products (ETPs) in the USA. This product includes two spreadsheets, one that …

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How Much Should We Expect the VIX to Move?

Every couple of months it seems like there’s an uptick in articles about the CBOE’s VIX Index being broken or manipulated.   Generally I expect the percentage moves in the VIX to be around a factor of 4 in the opposite direction of SPX (S&P 500).  But there are significant eccentricities in the VIX that I factor in, for example Fridays tend to be down days, …

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Taming Inverse Volatility with a Simple Ratio

Update This article was first posted in September 2012.  The strategy outlined below worked well until August 2013 and then basically went sideways for over 3 years before perking up again in 2017—when virtually any short volatility strategy worked.  I’ve updated the chart and the verbiage to reflect those changes.  In September 2017 the Cboe renamed its VXV index as VIX3M.  The Cboe does not …

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Credit Risk and Exchange Traded Notes

In their fifteen year history, which includes the 2008/2009 financial meltdown, a grand total of three Exchange Traded Notes (ETNs) have gone bust due to credit default—all 3 were issued by Lehmann Brothers.  The total loss to investors was less than $15 million.  This article on ETF.com gives the detailed story. How many public companies have gone bankrupt, rendering their stock worthless, in the last …

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How Do VQT and PHDG Work?

An ideal volatility investment would hold its value during quiet times and then ride volatility up as the market panics.  Barclays’ VQT and Invesco’s PHDG are two Exchange Traded Products (ETPs) that are designed to fill this need. These two products use the same methodology but differ in that VQT does not distribute dividends, effectively automatically reinvesting dividends, while PHDG distributes any dividends quarterly.  The …

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