Filling the Gaps with VIX Weeklys

VIX Weeklys futures are expected to start trading in July

May 4, 2015 at 9:55 AM
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Don't have enough CBOE Volatility Index (VIX) products to trade? Well, you can rest easy ... VIX Weeklys futures and options are coming! This, from the Chicago Board Options Exchange (CBOE):

"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® (CBOE®) shortly thereafter, also subject to regulatory approval.

"... 'Weeklys continue to be one of the fastest-growing products industrywide, and we're pleased to answer the demand from market participants for additional products with the launch of our new VIX Weeklys,' said CBOE Holdings CEO Edward T. Tilly. 'VIX Weeklys will complement our standard VIX options and futures, and by 'filling the gaps' between monthly expirations, we are providing investors with new opportunities to establish short-term VIX positions, and fine-tune the timing of their hedging and trading activities.'"

Consider those gaps filled! However, I'm not real sure what this really adds. I mean, I understand it adds more options and futures we can play with. I'm just not sure there's such demand to fine-tune VIX trading this much. It's already a bit of a crapshoot anyways. All VIX options are European exercise, and they are options on VIX futures, not the VIX itself. So you're always just "betting" on where VIX will be when the option/future expires, not how it gets from here to there. These new expirations simply give us more ways to place the same bets.

So, hey, there's nothing wrong with that. Just saying I'm not sure there's so much demand or need for it. But whatever ... the more cycles the merrier!

'Twas a kind of boring week for VIX, in that we ended very close to where we started. The market did have some real jigs, though -- four down days, then one strong rally, and we closed with a loss of about 0.4%. It's been a recurring theme all year. There's decent day-to-day volatility, but we never seem to break importantly either way. Ten-day realized vol is about 10 ... which isn't high, of course, but it's not that pathetically low, either. VIX in the mid-12s is somewhere between reasonable and cheap.

Bollinger Band Width does a better job of gauging the longer-term ranges -- and in the S&P 500 Index (SPX), that has contracted to its lowest levels since September. Of course, it's somewhat of a contra indicator in that low vol is thought to beget high vol ... and it will some day, it's just rather tough to time.

Long story short, if you can stomach the day-to-day gyrations, these are halcyon days for options premium sellers that don't hedge actively. Every level gets revisited again and again. Maybe it's in a few days, maybe it takes a few weeks, but that range we all bemoan works quite well with the gamma-shorting strategy.

I'm not suggesting that. In fact, the second it seems like easy money is the second everyone piles in and we move outside the range. But by the same token ... why fight it?

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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