Posts tagged 'Vix'

Vol is low, not cheap

We’ve talked about how quiet the market is already.

Complacency is becoming an ever more common hit in our inboxes, and we assume not just because of herding instinct.

It’s also because, as we already quoted Citi: “Current vols are a strong outlier, not just compared to 2016, but against the average for all Augusts since 2000 (see charts 2, 3 below). That should give any trader pause.” Read more

Look what’s getting skewed

The CBOE Skew Index is catching people’s attention this week.

Here’s the chart, by way of Pravit Chintawongvanich at Macro Risk Advisors:

 Read more

The shadow convexity risk in the machine (and the VIX)

Every so often Chris Cole, of Artemis Capital, perhaps one of the deepest and most provocative thinkers in the volatility trading space, graces us with a rare glimpse into his imaginarium.

His latest publicly available research report offers this:

The Prisoner’s Dilemma is the most important paradigm for understanding shadow risk in modern financial markets at the pinnacle of a multi-generational debt cycle unparalleled in the history of finance.

In their masterwork tapestry entitled “Allegory of the Prisoner’s Dilemma” the artists Diaz Hope and Roth visually depict a great tower of civilisation that rests upon a bedrock of human cooperation and competition across history. The artists force us to confront the fact that after 10,000 years of human civilisation we are now at a cross-roads. Today we have the highest living standards in human history that co-exist with an ability to destroy our planet ecologically and ourselves through nuclear war. We are in the greatest period of stability with the largest probabilistic tail risk ever.

 Read more

Now that everyone’s a volatility seller…

In February 2012, Macro Risk Advisors drew our attention to an explosion in the market cap of the TVIX ETP, the 2x Vix exposure ETP offered to the market by Velocityshares, but backed by Credit Suisse.

As it happens, that fact turned out to be a perfect forward indicator to a whole sequence of shenanigans and suspensions to come in the ETP, confirming a general rule in our minds that whenever ETP market caps explode, beware, there’s probably someone somewhere (not the dumb money, of course) unearthing an arbitrage at the expense of the vanilla investor.

Well, more than two years later — perhaps because 2x Vix exposure isn’t quite as sellable as it used to be — the recent volatility spike has flamed another curious explosion in market cap. But not in volatility hedging instruments that reward when volatility spikes up, but rather, their exact opposite: inverse volatility ETPs, which reward when volatility reduces. Read more

Calm ain’t bad, necessarily

A counterpoint to worries about the stuffy air of silence settling on markets arrives from Citi. Fear not the market calm, it is an unreliable sign of things to come.

There is little relationship between market volatility and future equity returns over any time horizon. Current low levels should not be seen as a clear sign of investor complacency and an imminent market correction.

Pickers of stocks cannot relax, however, because while market level volatility is low, it turns out that “style volatility” is up. Read more

Guest post: Does the VIX really measure volatility?

This guest post is from Peter Cookson, founder of Perels, a consulting firm focused on emerging financial trends.

The CBOE Vix volatility index fell 12 per cent, closing at its lowest level since February 2007 — FT, June 19th

 Read more

End of a low vol era?

Maybe, says SocGen’s hedge fund watching team. Apparently hedge funds are about to turn buyers of volatility for the first time in three years…

 Read more

Why the new shoeshine boy trade is shorting volatility

Crowded trade alert.

Chris Cole, of volatility fund Artemis Capital, has an insightful piece in the latest edition of the CFA Institute Conference Proceedings Quarterly warning about one of the most popular trades of recent times: the shorting of volatility via Vix ETPs.

The speculative shorts on Vix futures as a percentage of open interest, for example, are already running at an all-time high. In Cole’s mind this now equates to the shoeshine boy trade of the modern era.

One of the ironies, he also notes, is that the trade simply synthesizes a much less efficient version of a 3-4 times leveraged position on the S&P 500. Read more

Chart du jour, the Gold Vix

By way of the CBOE:

 Read more

A powerful convexity in short-term Vix futures

Before we comment about the strange behaviour of the Vix this week, we’d like to engage in a bit of a thought experiment.

There are two hypothetical scenarios that we’d like you to consider.

The first relates to the rampant nationalisation of everything:

What happens to market prices and volatility in an economy where government intervention becomes de rigeur every time prices misbehave?

 Read more

The vexatious VIX

What should we make of this? The CBOE VIX, the barometer of choice for those monitoring market volatility, dropped like a stone between Xmas and New Year. And the trend has continued in the days since…

 Read more

Welcome to the ‘Desert of the Real’ — a postmodern economy

Volatility guru Christopher Cole, who heads up the volatility fund Artemis Capital Management, is known for making interesting arguments when it comes to volatility and risk. Previous philosophical thoughts have questioned the concept of volatility, proposed that risk itself is changing, and that QE and other forms of government intervention are warping volatility beyond recognition.

His latest note, though, takes us to an entirely new dimension of market abstraction. Read more

A muted Vix

Once again the financial world is a bit mystified about the performance of the Vix.

How can it be that the Vix index is trading at five-year lows when expectations are anything but bullish? Note, for example, the below chart via Also Sprach Analyst: Read more

A super contango in fear

This is a guest post for FT Alphaville by Theo Casey, a columnist at Futures & Options World, blogging on the back of FOW’s European Equity Options conference in Amsterdam.

The year is 2017. Read more

When the tail-event becomes the standard risk

If anyone can bring metaphor and illustration to the market in volatility,  it’s Chris Cole at Artemis Captial Management, a volatility-focused investment firm.

Take the intro of his latest note as an example: Read more

The vega is strong with this one

Vega. The brightest star in the constellation Lyra. Or, jargon for the sensitivity of an option’s value to the change in expected volatility.

Usually, it’s described as the absolute change in an option’s value for every percentage move in volatility. Read more

The TVIX settlement issue

Here’s an interesting chart that’s just landed in our inbox.

It comes courtesy of Fred Sommers at Basis Point Group, a firm specialising in the analysis settlement fails across the financial industry: Read more

For a few Vix hedges more

Last week a rather interesting thing happened in the world of volatility ETNs. The VelocityShares 2x short-term Vix futures ETN, backed by Credit Suisse and known as TVIX, announced that after a brief period of suspended issuance it would reopen the note to issuance orders from market makers.

It had previously closed issuance on February 21 citing “internal limits” at Credit Suisse. Read more

Gunfight at the T.V.I.X. Corral

There’s been a lot of talk about the carnage in the TVIX on Thursday. The VelocityShares 2x short-term ETN, whose new issues were suspended by Credit Suisse on February 21 due to “internal limits”, fell 29 per cent. Curiously, the slide came just before an announcement from the provider that some level of issuance would be reinstated.

Understandably, the idea that the re-opening was leaked ahead of time is now doing the rounds. After all, why would the ETN, which had been trading at an 80 per cent premium to NAV, suddenly converge with its indicative value for any other reason? Read more

Pushing correlation

Helen Bartholomew at International Financing Review (IFR) has an interesting story out this week about the industry’s push to create a workable correlation product.

Currently, if you want to take a view on correlation, it’s pretty difficult. Bilateral correlation swaps generate mark-to-market risk, while option strategies require a lot of delta hedging of both the index and the constituents — what’s more, this may become hugely expensive if and when Europe introduces a transaction tax. Read more

Double trouble in TVIX

What on earth is going on with the TVIX ETN?

Last week we pointed out that there has been a hugely unusual rush into the double volatility ETN — which is managed by VelocityShares but backed by the banking prowess of Credit Suisse.  Daily trading volume has also been noticeably high. Read more

Vix dog millionaire

Macro Risk Advisors’ (MRA) Dean Curnutt has picked on a very interesting development in the land of volatility ETNs. In the last few days there’s been an absolutely astounding amount of vega trading through these products.

As he notes: Read more

The Vix feedback loop, analysed

Are VIX ETNs and Vix-related funds influencing the Vix futures curve?

Has the popularity of Vix trading come to impact wider volatility surfaces, if not the S&P 500 options used to construct the Vix index themselves? Read more

Volatility is change, and the world is changing

“All we have left to show for our three year liquidity orgy is the most correlated period in modern finance.”

That’s the succinct and telling view of volatility guru Christopher Cole at Artemis Capital Management. Read more

Vix curve implies a ‘systemically important shock event’

As the Vix and More blog duly noted last Friday, not only has spot Vix been spiking in its own right (last print seen around the 40 mark on Monday), the entire Vix term structure has flipped into backwardation over the last 10 trading days:

 Read more

The evolution of systemic risk

Macro Risk Advisors, headed by Dean Curnutt, are specialists in derivatives strategy. One of their chief occupations is thus evaluating risk and volatility.

Given that, it’s probably fair to say they’re in a good position to comment on matters “systemic risk” related. Read more

Crouching Vix, hidden volatility

As FT Alphaville has written before, the volatility is out there.

You just have to look for it — and not by glancing at industry-standard, the CBOE Vix index. Read more

The calm before the (volatility) storm

We ♥ this note from Bank of America Merrill Lynch’s Ruslan Bikbov and Priya Misra.

It’s on a subject dear to our own hearts here on FT Alphaville — the curious case of persistently low volatility and the idea that it might be masking systemic risk. It also weaves together a plethora of other themes — massive short volatility positions, search for yield, correlation, LTCM — we’ve touched on. Read more

If it bleeds…

With hedge funds going into the meedja sentiment business this is probably worth exploring:

Finance news articles mentioning ‘crisis’ are at a three-year low, say Société Générale’s cross-asset research team using a famed indicatorRead more

What is the fair value of a Vix future?

What is the fair value of a Vix future? In truth, it’s actually pretty hard to say.

This is a point FT Alphaville has raised before of course — whilst pondering some other volatility-related issues, like the current elephant in the room that is Vix-related ETNs (arguably tramping about on the supply and demand balance of the Vix curve), and the question of why spot volatility remains so stubbornly low while longer-dated volatility and variance pound higher. Read more