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So it seems to me that VIX calendar spreads carry a unique risk compared to calendar spreads on any other underlying instrument.

You can lose more that the original debit, can you not?

The first clue to me was that we were able to enter the VIX put calendar spreads at a credit rather than a debit a few days ago.

Any comments would be appreciated.

Edited by OptionsEnthusiast™

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Santelli: "We Used To Think Plunge Protection Was Heresy, Now If You Don't Have It, It's Heresy"

Edited by OptionsEnthusiast™

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"Recessionary Retail Sales & Broken Markets Spark Volumeless Buying In Stocks, Bonds, & Crude" [PART 1]  

Edited by OptionsEnthusiast™

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Volatility In Motion

Submitted by Tyler Durden on 07/16/2015 11:08 -0400


      Submitted by Salil Mehta of Statistical Ideas

      Volatility In Motion

      Views on volatility are often only within recent context, causing sometimes influential advisers and investment banks to misguidedly extrapolate correction or premature rebound calls with far greater frequency then they actually occur (excessive false positives).  In this article we see everything through a pertinent wider lens.  We focus on how and when volatility moves from one level, to another.  

      The implied volatility index is currently trading in the upper-teens (about average); a natural question to ask is how long will we might stay there, before breaking out of this range level.  Days, weeks, or months?  Without fail, all of these choices have been seen through history, though we will show what the probability distribution is on these choices.  We show that volatility tends to change quickly within this middling environment, though not so quickly as we often hear suggested in the media.  Also the duration of time at any given volatility decile tends to be serially uncorrelated across time.  The other interdependent question a trader generally has is about how volatility will change from here.  Will the transition profile remain similar to last year’s, or from these volatility levels does it tend to either collapse or rise?  Again a true and refined answer sometimes takes into account a joint combination of these questions.  It is more a matter of unpredictable economic cycles.  Not econometric risk patterns.  You'll earn through nine exotic illustrations into volatility, a solid anchor for understanding the changes in volatility distribution that would address the questions just now posed.  While we recommend neither trading nor listening to those who tell you to, this reference would be great for anyone curious to understand the transitory behavior of markets.

      Before we begin though, we should bring up some preliminary reading covering some basic risk analysis, so that we can appreciate how the vantage of today's article here is different.
      volatility, without considering duration
      conditional volatility and volatility regimes: today’s article combines these two topics plus includes a mapping to duration
      seeing low volatility: today’s article explores volatility by deciles, as opposed to quartiles of volatility treemaps
      tail risk
      tail risk curves and tail concordance: today’s article here focuses on transitions in tail and non-tail equity risk, as opposed to focusing on action videos of tail risk events and copulas across asset classes
      our autumn of discontent: today’s article focuses on annual time units, as opposed to seasonal or daily tail risk patterns
      market convolution
      just waiting to be right (herehere) and risk-unaware: top 1% across states: today’s article looks at market volatility as opposed to other distributions across the population
      guassian and non-guassian distribution
      abnormal risks (shared by a Board member of Lending Club): today’s article looks at historical, non-parametric data, as opposed to advanced probability modeling with guassian (normal) distributions
      Volatility by volatility decile
      The chart below shows the overall daily distribution of the VIX, over its entire multi-decade history through YTD.  We color segregated the distribution by deciles.  While the median volatility has been ~18%, the mode we can identify as ~13% (we see it is at 8% of days, or averaging semi-monthly).  Because there are not many experiences where the volatility has exceeded 18% (even though in those cases we can see the rise can be phenomenally explosive), the average is not that much greater than the median.  The overall average is just ~20%.
      In this chart below we present again this volatility, but spread across time.  We use the same volatility decile-coloring scheme as before, as well as state the range within each VIX decile.  One should notice some interesting characteristics from this chart.  An outstanding ~½ of 2009 was spent in the 10th volatility decile, and that also happens to be continuously within that year (so no transitioning breaks in and out of that decile).  So much continuous time gives some professionals an erroneous sense that this volatility can occur often, even though it was one of the outer deciles!

      And so by definition each year should have an equal 10% of the time spent in the 10th decile (or any other decile).  We see payback then for the 10th volatility decile being prominent for many years through 2011, since with 2012 onwards, none of the time has been spent in this decile (and only <1% in the 9th volatility decile!)  It’s impossible to tell when in the proximate future we might break out of the nearly 14%-15% typical volatility we’ve seen in recent years, and elevate to the top decile volatility values.

      We'll perform traditional non-parametric tests on a similar distribution type below.  But it should also be noted that if we used machine learning tools on the data pattern above, then the 9-12 and the 29-81 volatility clusters (a well-known phenomena) would jointly be the first contour to be shaped out from the rest of the distribution.  We can see in the chart above that every year would be impacted right away.  So only brief in-between periods where the outer deciles consume very little of the year; and we could be nearing one of those times soon.  The next non-linear carve-out would be the 12-13 and the 25-29, again jointly.  Now these are the 2nd and 9th decile, yet they are subsets of the outer 1st and 10th decile years shown above!  See the art by Jeff Koons at the bottom of this article for a similar theme on support vector machines.  The lesson here is that, despite how financial professionals portray their logic in the news, one can't predict the onset of an extreme decile, by the sudden appearance of the next most extreme decile.

      Now for the transition matrix, we show the probability distribution of which decile the VIX goes to, based on which decile the VIX is currently in.  The entire Markov matrix format we show sums to 1 (100%).  As a trader, the take-away from this section is that volatility (approximate levels that is, not movements within) tends to be serially correlated across time (years of continuously low volatility, years of continuously high volatility).  Financial news and investors however tend to think there is path dependency however, which hasn't been the case.  Right now we have been in a low volatility period for a time; during which time, ongoing calls for 10% corrections and the like don’t make sense.



      Next we show the amount of typical time spent in a VIX decile, once there.  Obviously each decile, by definition, should only exist for an equal 1/10 amount of time.  So what we show below is more of a sense of continuous streak duration, something we explore in greater depth in the Duration by volatility decile section immediately below.  We can see more clearly here, where fewer -though lengthier- streaks lie.
      Duration by volatility decile
      In this chart below we look at the duration the market continuously spends in a volatility decile, before transitioning to another decile.  One can notice that the durations are typically brief here (three days), though once volatility is at an extreme level this duration is at times, notably greater.
      Next we show the typical duration matrix, where we indicate the typical length of time to move to one VIX decile, from another, whenever such a transition occurs.  We notice that with 2012 onwards, the duration within the deciles is more brief (2 days, down from 3 days).  Particularly for the lower deciles, the duration of time is still greater than normal even though this has been brought down (e.g., recently 3 days vs. 2 days, while we see in the overall chart above that it is 6 days vs. 3 days). As a trader, the take-away from this section is that one shouldn’t expect to hold their positions for long, with the exception of when volatility is at a severe level (high, or low).  Clearly we have been at extreme low volatilities frequently, with 2012 onwards, though it is unclear how much longer that might continue to be the case.
      Next we show the amount of time continuously in a VIX decile, based only upon the duration of time spent in the previous decile.  If there were a relationship between two, we'd see transition charts similar to those above, where the contour is greatest in a linear fashion as high durations in a volatility decile would typically lead to high durations in another volatility decile.  However, as we examine in the Duration by duration decile section immediately below, the high copula style analysis is fairly independent.

      Duration by duration decile

      The chart below shows the overall duration distribution, similarly segregated by duration decile.  What we are showing in the duration distribution (how long volatility continuously remains in a volatility decile before moving to another decile).  Other than 1 censored duration at 170 days, the next highest outlier is at ~60 days.  We notice that these transitions generally occur immediately within a couple days (65%), with most within 19 days (~99.5%).
      So far we know from this article that there are fewer extreme VIX deciles, within the brief duration streaks (those in lower duration decile); and more of those extreme VIX deciles in the lengthier duration streaks.  Conversely, there are fewer middling VIX deciles (such as the period we have often been in, with 2012 onwards) within these lengthier duration streaks.  

      Also notice that the highest duration is our non-parametric 10th decile; most of these durations are between 7 days, and 20 days.  This comports nicely with what we showed earlier in the Duration by volatility decile section.




      In this chart above we show the duration deciles per year.  We can again notice the pick-up in the low 4th decile duration (i.e., 1 day), with 2012 onwards.  We have often seen a similar pattern in the mid-1990s.  And this chart may appear more subtle that then volatility chart (2nd chart from the top of this article), though it is statistically significant in the distribution of events per duration (a Chi square of ~0%.)  This implies that what we've seen is a lower volatility environment that we’ve recently experienced, as much as it implies a lower duration systematically across volatility deciles.



      Lastly, we see that there is a memoryless duration transition, where the duration in the previous volatility decile has no information to provide on the duration in the next volatility decile it moves to.  Even if one wishes this to be the case, the market has shown -over multiple decades- to have another scheme.  Durations simply are lower then we generally expect, and whenever they burst higher for any reason, they tend to regress expeditiously back down towards one or two days.  We show in the article that it is simply the independent, and empirical nature of the duration distribution.  Given the more continuous nature of durations given volatility decile, it is simpler to show convolution among the unconditional overall durations where the measurement unit was discrete days.  So here is an example of what can expect over a given trading week (five days).

      Number and probability of gross volatility decile switches:

      0       is ~18%, since the top 2 duration deciles is >5 days

      1       is ~26%, since there is a nearly 82% chance of not having 0 duration switches (implying an initial duration of >5), and within each possible initial duration therefore we compute the other remaining 1 possible duration switch such that only 1 occurs within a week

      2 or 3 is ~29%, since this is the balance remaining so the column sums to 100%

      4       is ~13%, since there are 3 permutations of either immediately seeing 4 1-day durations (43%^4), plus the likelihood of seeing 1 2-day combination in the initial 3 days with 1-day transitions otherwise (3*43%^3*22%)

      5       is ~1%, since this is the 1-day duration probability of 43% occurring 5 times

      More than ½ of all trading weeks therefore include anywhere between 1 and 3 volatility decile transitions.  Also note that this is not the more complex derivation of the number of net volatility switches (since volatility can rise or fall with each transition).  Volatility indeed tends to move quite often.  But never so fast -with netting- as to expect that if we are in a bottom volatility decile market, to expect a rise to the top decile to occur in a matter of a couple weeks!  Good things sometimes seem to take forever, and both financial media and human psychology sometimes can't appreciate that market changes are not spontaneous.  Finding one's perspective is paramount; as 20th century singer John Lennon wrote in Beautiful Boy (Darling Boy):

      Life is what happens to you while you're busy making other plans.

      As a trader, the take-away from this section is again that one shouldn’t expect to hold their positions for long.  Certainly not as long as a similar strategy one may have adapted and carried over from during the financial crisis and its initial recovery (all of which concluded years ago).


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OptionsEnthusiast - Thanks for the article with charts and graphs.  It really illustrates the data behind my VIX trading strategy over the last few years.  The data clearly shows that the VIX has not spent significant time above 20 since 2011, and when it does it quickly drops back down.   Behavior will likely change at some point in the future - but until the market starts to show the trend changing I'm going to trade based on the behavior of the past 3 years.  That is not playing for big VIX spikes because its tough to predict when they will happen (other than special cases where VIX is at all-time lows), but when the VIX does rise for a few days in a row I'll place trades for it to drop back down again (usually short duration VXX put debit spreads or diagonals).  Also, since the VIX spends almost 90% of the time at 18 or below I'll trade VIX call calendars every month with strikes ranging from 15-18.

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FYI, the CBOE Futures Exchange will be listing VIX futures with weekly expirations starting on 7/23, and VIX weekly options will likely follow:  CBOE Futures Exchange To List VIX 'Weeklys' Futures July 23

July 6, 2015

CHICAGO, July 6, 2015 - CBOE Futures Exchange, LLC (CFE®) today announced that it plans to list futures with weekly expirations on the CBOE Volatility Index® (VIX® Index) beginning Thursday, July 23, 2015, subject to regulatory review. VIX Weeklys options at CBOE are expected to follow, also subject to regulatory approval.

The VIX Index is based on real-time prices of options on the S&P 500® Index (SPX) and is designed to reflect investors' consensus expectations for 30-day stock market volatility. Standard VIX futures and options expire monthly. Weekly VIX futures and options expirations offer convergence to the VIX cash index four to five times per month, instead of once a month. Generally, the closer VIX futures and options get to expiration, the closer they tend to parallel the underlying VIX Index.

"We're pleased to launch VIX Weeklys futures, giving investors a new way to trade the world's premier benchmark of equity market volatility," said CBOE Holdings CEO Edward T. Tilly. "The addition of VIX weekly expirations to standard monthly expirations offers volatility exposures that more closely track the performance of the VIX Index. VIX Weeklys futures will give investors more opportunities to trade VIX and greater trading precision when responding to breaking news and economic events."

CBOE pioneered the concept of 'Weeklys' in 2005 and today they are among the industry's fastest-growing products. Contracts with weekly expirations allow investors to implement more targeted buying, selling, spreading and hedging strategies.

New weekly expirations for VIX futures will be listed on Thursdays (excluding holidays) and expire on Wednesdays. CFE may list up to six consecutive weekly expirations for VIX Weeklys futures. VIX Weeklys futures will be available during CFE's regular and extended trading hours. For more information on VIX Weeklys futures, go to

About CBOE Futures Exchange

CBOE Futures Exchange (CFE) offers contracts on CBOE Volatility Index (VIX Index) futures (VX), S&P 500 Variance futures (VA), CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) futures (VXTY) and CBOE Russell 2000 Volatility Index (RVX) futures (VU).

VIX futures are available for trading nearly 24 hours a day, five days a week at CFE, beginning Sunday at 5:00 p.m. CT and ending Friday at 3:15 p.m. CT. CFE closes for 15 minutes between 3:15 p.m. CT and 3:30 p.m. CT, Monday through Thursday, after which the next trading day begins at 3:30 p.m. CT. For additional details on extended trading hours, see

CFE, an all-electronic market, is a wholly-owned subsidiary of CBOE Holdings, Inc. (NASDAQ: CBOE). CFE is regulated by the Commodity Futures Trading Commission (CFTC) and all trades are cleared by the OCC. More information on CFE and its products, including contract specifications, can be found at:

Media Contacts:  

Analyst Contact:

Suzanne Cosgrove Gary Compton Debbie Koopman (312) 786-7123 (312) 786-7612 (312) 786-7136


CBOE®, Chicago Board Options Exchange®, CFE®, Execute Success®, CBOE Volatility Index® and VIX® are registered trademarks, and CBOE Futures ExchangeSM, CBOE/CBOT 10-year U.S. Treasury Note Volatility IndexSM, CBOE Russell 2000 Volatility IndexSM, VXSM, VASM, TYVIXSM, VXTYSM, RVXSM, and VUSMare service marks of Chicago Board Options Exchange, Incorporated (CBOE).

Standard & Poor's®, S&P® and S&P 500® are registered trademarks of Standard & Poor's Financial Services, LLC and have been licensed for use by CBOE and CFE. Russell® and Russell 2000® are registered trademarks of the Frank Russell Company, used under license. CBOT is a trademark of CME Group, Inc. (CME). CBOE has, with the permission of CME, used such trademark in the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index. CME makes no representation regarding the advisability of investing in any investment product that is based on such index. All other trademarks and service marks are the property of their respective owners.


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Thanks for posting this info.  I know this is off-topic from the VIX trade, but does anyone have a good chart of US inflation that is up to date?  Surprisingly I can't easily find one on Twitter or searching on Google.  According to this site, we're at 0% inflation.

I hear Yellen keep saying the Fed's target inflation is 2% before raising rates.  If we're not close to 2%, why do I keep hearing people on CNBC keep commenting that they are raising rates in Sept and Dec?  Because of the yield curve, and the fed funds rate is implying such?

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VIX® WeeklysSM Futures and Options

CBOE Holdings plans to list weekly expirations for VIX futures and options. VIX Weeklys futures are expected to begin trading at CBOE Futures Exchange (CFE®) in July, subject to regulatory review. VIX Weeklys options are expected to begin trading at Chicago Board Options Exchange® shortly thereafter, also subject to regulatory approval.

In 2005, CBOE® pioneered the short term options space by introducing the first weekly expiring options contract. Except for more frequent expiration dates, Weeklys generally have the same contract specifications as monthly expiring contracts. Weekly options traded on CBOE have become extremely popular with investors. For example, SPX Weeklys currently represent approximately 30% of all SPX options volume.

New weekly expirations for VIX futures and options will be listed on Thursdays (excluding holidays) and expire on Wednesdays. CBOE and CFE may list up to six consecutive weekly expirations for VIX futures and options.

The addition of weekly expirations to standard monthly futures and options expirations offers volatility exposures that more precisely track the performance of the VIX Index. The closer VIX futures and options are to expiration, the more closely they generally track the VIX Index. By 'filling the gaps' between monthly expirations, investors may obtain new opportunities to establish short-term VIX positions, and fine-tune the timing of their hedging and trading activities.

Weeklys VIX futures and options on VIX are a different product from previously listed futures and options on the VXSTSMIndex, the CBOE Short-Term Volatility IndexSM. The VIX Index measures a 30-day period of implied volatility while the VXST Index provides a gauge of 9-day implied volatility. CBOE expects that margin and capital requirements for VIX futures and options with weekly expirations will be lower than the margin and capital requirements were for VXST futures and options. Importantly, CBOE expects that quotes on VIX Weeklys will be listed within VIX futures and options chains.

Contract Expirations and Ticker Symbols

The Exchange may list for trading up to six near-term expiration weeks, nine near-term serial months and five months on the February quarterly cycle for the VX futures contract. VX futures that have a "VX" ticker are not counted as part of the six near-term expiration weeks. For example, if 4 near-term VX expiration weeks, 3 near-term serial VX months and 1 VX month on the February quarterly cycle were listed as of April 7, 2016, these expirations would have the following ticker symbols:

  • VX15 (expiring Wednesday, April 13, 2016)
  • VX (expiring Wednesday, April 20, 2016)
  • VX17 (expiring Wednesday, April 27, 2016)
  • VX18 (expiring Wednesday May 4, 2016)
  • VX19 (expiring Wednesday, May 11, 2016)
  • VX (expiring Wednesday, May 18, 2016)
  • VX (expiring Wednesday, June 15, 2016)
  • VX (expiring Wednesday, July 20, 2016)

Click here for a link to Quote Vendor Ticker Symbols for CBOE Volatility Index® (VIX®) Futures.


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Weekly VIX options will cause the VIX call deltas to rise to higher strike prices and put deltas will drop to lower strike prices like a monthly VIX option that is one week or less from expiration.  Weekly VIX options are primed for hedging short-term event driven volatility spikes and drops.  With VIX at 12.00 with just two days left to the July VIX option expiration, the VIX 11.50 call has a delta over .90 while the VIX 16 put has a delta less than -.9   The VIX 14 Put has a delta less than -.75

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It will be interesting to see how the weekly VIX options behave once they are implemented.  I like the current VIX options for monthly call calendars and for the put calendars and/or verticals when the VIX is very low.  However, for shorter duration VIX-based trades I have typically used VXX options which already have weeklies, bid/ask spreads pennies apart, and high trading volume (one of my favorite trades along these lines is when the VIX is up multiple days in a rows I like to buy near term VXX put debit spreads or diagonals to play for the VIX dropping back down).

Edited by Yowster

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Hi OptionEnthusiast, 


Thanks for the heads up! Looks like CBOE love weeklies as they drive up exchange commission but their greed is hopefully also the traders gain. 


In my personal experience, VIX calendar trades have worked out pretty well over the past 1.5 year - albeit with some stress because usually the entry calls for high volatility situation (e.g., Greece, Swiss de-pegging from Euro, ISIS, etc); but the thesis has been tested (so far): that the volatility and uncertainty from markets abroad does not materially change the "gilded" economic recovery in US, with VIX returning back to 12 after the media frenzy. 


So if your margin can withstand the irrationality of the market for some weeks, you can attempt to close after VIX drops back to 12. 


My biggest issue with VIX is that the trade is extremely commission intensive; as anyone who has traded VXX (which is the synthetic 30-day mix of the closest and 2nd closest-to expiring VIX futures), usually one has to trade a lot of contracts and add the multiplier if you are doing complex spreads. 


So VIX calendar (when VIX spikes), 

VIX put bull spread (when VIX is under 12) or VIX broken wing butterfly, 


So looking forward to CBOE's weeklies on VIX! 




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I would think that the VIX will go down after the FOMC announcement at 2pm EST tomorrow and after the GDP number Thursday morning.  Just a guess.

My guess is that the FED may state in its own words that "Everything is Awesome" and is "getting better" all the time.  The markets will strike higher on that meme.  However, the markets will then realize that everything is awesome and on schedule for the FED to begin tightening monetary policy starting in September.  At that point, the markets will turn over as institutions will sell into the ramp because the markets are forward looking.  Institutions will continue to take long-term profits and increase their cash positions.  Central banks will attempt to mitigate the effects of their tightening stance by purchasing eMini futures today and overnight.  Central bank intervention is distorting the true impacts of its change in policy.  The real action will likely be seen in the bond markets especially at the long end of the yield curve.


On Thursday, annualized GDP may show some slowing, but will still come in around 3% which will support the FED meme from Wednesday and the markets will continue to sell off because it will be interpreted as the last chance to get out before the ramp up in interest rates.


In retrospect, it would have been best to take gains in VIX positions Monday morning.  Wait for the central bank intervention to ramp-up the equity markets today to begin averaging back into VIX positions.  VIX is back down in the mid-13s and the VXX is back down in the mid-16s.  


Overnight, central bank intervention in the eMini markets may reduce volatility even more.  This may allow you to enter at even better prices tomorrow morning before the FOMC announcement at 2PM EDT tomorrow afternoon when volatility is likely to spike again barring continued and extreme central banking intervention to mitigate volatility associated with its change in policy.  


However, the bond markets are likely to see the biggest pullback especially at the long end of the curve.  TBT is currently around $46/share and TLT is currently around $121.50/share.


Everything Is AWESOME!!! -- The LEGO® Movie 


The Beatles - Getting Better

Edited by OptionsEnthusiast™

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"China's "Manipulated" Market To Plunge Another 14%, DeMark Predicts"


The degree of preemptive central bank intervention may be greater now because of how fast China's manipulated markets became unglued.  The old adage "Never Fight the Fed" is interesting in this context.  As ZeroHedge points out in the linked article "although it's not wise to bet against a central bank, it might be even more dangerous to bet against millions of angry housewives determined to cash out."  China's gloomy situation may exacerbate the level of central bank intervention in the U.S. to unprecedented levels increasing the likelihood of losses in bull VIX and VXX positions.

Edited by OptionsEnthusiast™

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"Santelli: 'We Used To Think Plunge Protection Was Heresy, Now If You Don't Have It, It's Heresy'"

Submitted by Tyler Durden on 07/14/2015 13:19 -0400

Edited by OptionsEnthusiast™

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It always helps to have backtesting data before you engage in any VIX or VXX trade. However, even if you have all the backtesting information, in a market environment where central banks are heavily manipulating the markets even your best made plans can be destroyed by excessive government intervention.

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