The Volatility Landscape—May 2013

News CBOE The CBOE plans to extend VIX® Futures trading by over 5 hours—aligning with the London Stock Exchange open, and adding a 45 minute post settlement trading period 4:30 ET to 5:15 ET Monday through Thursday. Two new volatility indexes, DLVIX and DSVIX are documented on the CBOE website.   These indexes were developed in cooperation with the French bank Société Générale and are now …

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VIX Futures—Crystal Ball or Insurance Policy?

Many people seem to believe that the CBOE’s VIX Futures market is attempting to predict upcoming CBOE VIX® values.  I think they are mistaken.  Most futures prices have very little to do with predicting the future. Futures contracts were invented to allow producers/consumer of commodities to limit their business risk by locking in future prices.  In exchange for eliminating price risk, they give up the potential for increased …

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When the Term Structure Chart Lies to You…

Update:  VIXCentral has enhanced their historical term structure graphs to use days to expiration rather than months for the time axis of the charts.  This change eliminates the distortions that I wrote about in the post.  VIXCentral’s historical charts now look a lot like the Excel charts that I generated for this post. Term structure graphs, like the VIX® future charts on VIXCentral.com are very …

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Short Volatility on a Roll

Investors betting on the next volatility spike have taken a beating. The last time the CBOE’s VIX® index closed above 30 was December 8th, 2011.  In the 16 months since the split adjusted price of Barclays’ VXX has dropped from 174.84 to 20.34—an 88% drop.  None of the 14 other USA based volatility funds that are designed to rise with volatility increases did well, the best …

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How Meaningful are VIX’s Big Percentage Moves?

Occasionally there are eye-popping percentage moves in the CBOE’s VIX® index—these moves generate a lot of headlines .  As an antidote to the hype a few savvy VIX followers noted:  “Remember that $VIX is already a percentage.”   Jared Woodward from Condor Options “The $VIX was up 2.08% today, NOT 18.5%”  Mark Sebastian from Option Pit . I have to admit that my brain spun a bit on Jared’s percent of a percent …

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