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.

We spend a lot of time parsing all things CBOE Volatility Index (VIX), and -- right here, right now -- there's not a whole lot going on. VIX with a full of 13 excites exactly nobody. It's on the low end, for sure, but it's pretty much in line with our current backdrop of a strong-ish and range-bound market.

But there's a whole wild world of stock and sector volatility out there. Maybe we're missing some more interesting trees in that forest. Or maybe not.

Here's a look at 30-day implied vol (VIX methodology) vs. 10-day historical vol (in some assorted index and sector exchange-traded funds [ETFs]). Also included is the implied volatility (IV) premium to historical volatility (HV), expressed in absolute value.

Well, not a whole lot there. Two huge SPDR S&P 500 ETF Trust (SPY) components -- Energy Select Sector SPDR ETF (XLE) and Financial Select Sector SPDR ETF (XLF) -- have seen a downdraft in realized vol lately. And that has clearly dragged down the broader-based SPY realized vol.

I use 4 points as a general "fair value" IV premium, and as you can see, most names above sit fairly close to that number. There is one standout, though -- XLE, again, which carries a 12.7-point premium. Oil itself has, of course, stabilized in 2015, after a well-publicized implosion in 2014. XLE has behaved similarly, but in a more muted fashion.

On the surface, it looks like options are late to acknowledge that the stock crush and volatility rush have ended, and are in fact a bit overpriced here. In reality, though, it looks more like the options are about right and the realized vol understates the norm in XLE. Implied vol in XLE was under 20 at virtually all times from July 2013 to September 2014. But since then, 20 vol looks more like a floor. Realized vol has behaved similarly -- it checked in over 20 for most of the past seven months or so before the recent cratering.

It's unclear at this point whether that vol spike was a blip, or the start of a more lasting up-cycle in the options. As such, pricing options at a mid-range volatility does seem appropriate. And in XLE, that's about a 20 vol.

It's worth keeping an eye on, though. XLE does comprise a big part of the S&P 500 Index (SPX), so if declining realized vol holds here, it could lead to a drift in our friend, the VIX.

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

We're smack in the midst of our (seemingly) weekly bout of extreme market ugliness. Could this be the "Big One"? Is it the time to back up the volatility truck? This, from CNBC:

"Options expert Dennis Davitt says he's never seen a better time than now to buy portfolio protection in the form of options.

'Markets are poised to explode like an over-compressed spring,' he said. And yet 'options are very inexpensive.'"

OK, sort of agree with the "over-compressed spring" part. Bollinger Bands are a good proxy for compressed, and as we noted the other day, they've gotten relatively tight. And we've hovered within a small-ish range for the entirety of 2015. That's not going to persist forever, so I don't disagree with planning for that inevitability.

But I'm not sure "options are very inexpensive." I mean, now, they're really not -- we're hovering at "overbought," as defined by CBOE Volatility Index (VIX) 20% above its 10-day simple moving average. This interview was before that, though, so let's talk in absolute values instead.

Yes, VIX in the 12-15 range is on the low end. Unfortunately, that's a good reflection of our current intermediate-term backdrop. Realized vol sits near 10. Index highs keep holding and every ominous-looking sell-off (so far) gets bought. I can't argue with anyone buying puts here at this volatility -- I just don't believe it's any sort of bargain-basement price. It's fair value for now. If you time a downdraft well, great; I'd just suggest that we've had a bevy of false breakdowns getting to this point, and I'm not sure why it's so different this go-around.

"'There are a ton of crowded trades like short euro and short oil that haven't been working out lately. There's a historic lack of liquidity. Negative rates on long-dated government bonds are increasing the use of leverage in fixed income products, because you have to be levered at these low levels. And utilities and staples are trading at growth multiples,' he said Tuesday in a phone interview with CNBC.

'And yet, options prices at these low levels are telling people, "Everything is OK."'"

Again, I can't dispute anything in there, with the exception of some special value in options now. We're "overvalued," the Fed's going to tighten, and we even have a Fed chair saying stocks are high (although she also said they're not high vs. bonds -- the market's not concerned with that latter part right now). And yet, options are ignoring this.

Are they? That's hard to imagine. Options price in an estimate for volatility going forward, from now until said option expires. To call them underpriced implies that they are not factoring in ... something ... that we don't know about just yet. Well, thing is, we know all this. We know stocks are valued at X times earnings, we know the Fed will tighten someday, et. al.

So I'm not sure options really say "everything is OK." Rather, I believe they say "we know about X, Y,  and Z, just like you," and this is our level of concern. And I just have a tough time saying our current level of concern is so out of whack.

One of these sell-offs will persist. It's four-plus months since our last overbought VIX -- which is on the longer end of normal. So, decent chance this market drop goes further. But if it gets to that point, I'd rather fade and sell volatility than pre-anticipate and buy options paper.

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

I believe my piece from yesterday implies that options pricing is always "right" in sort of a Nixonian way. President Nixon's defense once was that if the president did X, then by definition X can't be illegal, because the president did it. Something like that -- it was a little before my time, or at least before the time I had any idea what was going on.

With the CBOE Volatility Index (VIX), I'm afraid I sounded like "volatility is right, because that's what investors are willing to pay for it." And that's not really an accurate description.

Options volatility does get priced by "the market" -- well, unless you read a very popular tin-foil-hat sort of financial site that basically implies that the Fed decides on VIX. It's ostensibly a prediction of future volatility, but in reality it better reflects the realized volatility in front of us right now than anything else.

Of course, expectations do matter. Say there's a big Fed meeting on the horizon, and the markets are a bit frozen ahead of it. We would likely see rising implied volatility in the face of declining realized volatility. That would then resolve in some fashion after the meeting.

Thus, the best way to interpret VIX is to try to divine how well implied volatility reflects the current backdrop. The pundit whom I quoted was of the opinion that options are underpriced vs. reasonable expectations for future volatility. I'm not of that opinion.

Yes, VIX looks low on an absolute basis -- or at least, it looked low a couple days ago; not so much now (more on that in a sec). But to me, VIX looks pretty fair in the context of a market that keeps struggling to move off its relatively tight 2015 range. It's very much in line with realized volatility. We tend to trade with a modest premium of implied to realized, and that makes inherent sense. When you buy an option, you only risk the premium you paid, whereas when you sell an option, you incur theoretically unlimited risk. And all these stories out there we're so "worried" about -- slowing growth, Fed hikes, Greece, et. al. -- are known.

It goes back to that whole "black swan" thing. If we can identify a black swan before it appears, then by definition it's not a black swan. There are obviously "bad" stories out there we don't know about yet, but I can literally say that at all times. And that's precisely why implied vol trades over realized vol at most times. There's uncertainty, and there's premium in options pricing in that uncertainty. And those premiums look unexceptional right now.

As for VIX -- well, I do like to look at it vs. itself, or rather, its own price action. I define overbought as 20% above its 10-day moving average (MA), on a closing basis. It's not a magical number; it's more of a continuum. And right now, we're hovering in the high teens above the 10-day MA. So it got a bit overbought, but not extremely so.

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

"Despite gathering clouds, don't bet on a volatility storm." At least, that’s what this pundit says on what some are calling the greatest Yahoo! Finance interview ever.

"Given lackluster corporate earnings and anemic GDP, you’d think investors would be worried. In turn, you’d think the CBOE Volatility Index, or VIX, would be spiking.

"Yet that’s not the case; in fact VIX is down sharply over the past 3 months. Although that may seem counterintuitive, Schaeffer’s Investment Research contributor Adam Warner says the price action makes all the sense in the world. People call the VIX Wall Street’s fear index, but 'it’s not an emotional gauge,' he noted. 'It’s a measure of volatility expected in the market within the next 30 days.'

"And looking forward, Warner as well as Mike Santoli of Yahoo Finance, both said options traders see no reason to expect a particularly volatile market in coming weeks. 'Summer is coming and in the summer the market tends to go to sleep; it’s a seasonally slow time,' Santoli said."

Well, maybe. But let’s say this guy -- who I’ll call "me" -- is wrong. Why should I want to buy options or volatility products now? 

Well, this range can’t last forever. The SPDR S&P 500 ETF Trust (SPY) has hovered in a range of 204 to 212.50 since early February. That's about 4% low-to-high over three months, which is quite tight. It's conditioned traders to sell index strangles and hedge unaggressively. It's impossible to say when that range will break, but it's not impossible to say that there will be several trapped options charts at the break. The longer it holds, the more the shorts get confident, and then the more pain when it goes against them.

And there are signs something may happen. Realized volatility within the range is increasing. Ten-day realized volatility in SPY is now 13.5, which means you’re actually buying the CBOE Volatility Index (VIX) at a small discount. That’s unusual at a time when we’re not really moving anywhere.

And finally, we’re a bit overdue for a vol pop. VIX last closed 20% above its 10-day simple moving average in early January.  So we’re now four-plus months removed from our last major VIX-plosion. That’s on the longer end of normal. I should note we went about six months last year this time with an overbought signal -- and then saw a cluster of VIX mini-panics, so maybe history is repeating and we’re still a couple months away.

Throw it all together and I mostly agree with Video Me. I’d rather miss the next vol breakout than pre-anticipate it.

Everybody and their guru predicts a CBOE Volatility Index (VIX) rally sometime relatively soon. The next guy that gets on TV predicting drifting or even flat volatility will be the first guy. So, maybe we need to find this Rick Rouse from InvestorPlace and get him on CNBC! Here’s what he has to say:

"My chart work is telling me that the S&P 500 could make a run at 2,200 to 2,300 over the next six to 12 months and, if it does, it is very likely that the VIX will be below $10. This will certainly have the talking heads clamoring and questioning what is wrong with the volatility index ... [T]he VIX has fallen below 10 on only a few occasions.

"If and when the VIX does test $10 to $9, I would then become cautious myself on a market pullback, correction or selloff. It is possible that the VIX could hold $10 for a few weeks, but it will have become a hot topic, if not the hottest story, by then, at which point it will be time to go."

I don't necessarily agree that VIX will get to single digits. There's a bit of a floor in implied vol where it doesn't become economically viable to short options. Yes, realized vol can and does get lower than that. We've seen fulls of "3" at times over the past year. But, it's tough to convince traders that those lows will persist going forward, and as such it's tough to convince anyone to sell options at implied vols below 10.

In order to maintain a 10 vol, you'd need the S&P 500 Index (SPX) to have ranges of about 0.6% on two-thirds of trading days. That's really not a high bar. I'm not saying we won't see realized vol that low (we often do), just that you also have to convince "the market" that realized vol that low will persist going forward. And that's not something that happens terribly often.

But hey, it's a refreshingly contrarian opinion. I do believe that there's a good chance we break this current range to the upside, if for no other reason than it's the less-expected outcome. We're told over and over again about high earnings multiples, future interest rate hikes, sluggish economic numbers, et al. Bullish sentiment tends to lag, even in rallies. So, we could definitely see a rise on a "Wall of Worry."

Yes, I know I just wrote we're a bit overdue for an overbought VIX. But, none of this is mutually exclusive. We can see a short-term VIX pop within a longer-term flat or drifting VIX. In fact, we often do. It happened as recently as last year. VIX went to near single digits in early July and then shot up to overbought two weeks later.

I guess the moral of the story is most every call will eventually prove correct. Long-term trend changes are tough to time. And so are short-term blips, for that matter. We know both will happen, we just never can know exactly when.

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

As long as we're looking for contra tells in VIX-land, here's an interesting one. This, via Bloomberg:

"After the storm, calm. That's what happened to U.S. equities in 2014 and, going by bets in volatility futures, that's what big speculators see occurring again. Short positions in futures tied to the Chicago Board Options Exchange Volatility Index have tripled since February and now outnumber long ones by the most in 11 months, Commodity Futures Trading Commission data released Friday show.

"...Hedge funds and other large speculators in VIX futures held about 138,000 long positions and 213,000 short ones through May 5, CFTC data show. The bets on a lower VIX have climbed steadily since February as the gauge of S&P 500 options costs has dropped 34 percent."

Now of course, it's hard to blame them. Here's the CBOE Volatility Index (VIX) futures on Tuesday after our weekly bout of market ugliness:

 Realized volatility tends to hover near 10. VIX itself has spent most of 2015 in the 13-16 range, yet you can sell VIX futures half a year out in the 18-19 range. Always. Same as it ever was.

The thought is that the Fed will keep delaying rate hikes, and that's not a crazy thought, of course. But to me, it's more just about the reality of volatile markets and the permanent bid-up for time. If you're willing to become the insurance company against that lasting VIX pop, that will surely happen someday; you always have the wind at your back. You're going to take a hit someday, but it's likely you will have done so well until then that you can afford an occasional accident.

From that standpoint, it makes perfect sense that large hedgies are playing that game in a big way. In and of itself, it's not a contra tell to see smart money making a sensible play.

The thing is, this opportunity has existed forever -- or at least forever in VIX-time. Ever since volatility declined from the 2008 spike, the markets have priced in a future VIX "mean" reversion. They could have slapped this trade on over and over again. So, the fact that they're playing it larger now does have some significance. I'm definitely a believer that "zigging" when the masses "zag" is a sensible strategy. So, by that thinking, I should buy vol into this.

On the flip side, though, these aren't "masses" -- these are hedgies. Fading them is more of a mixed bag. And again, it's a strategy on their part that makes some sense given the pricing structure. So, I'm going to file this away as an interesting data point, but not something I'm going to react much to.

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

If there's one thing that defines 2015 so far, it's that at the end of the day/week/month, nothing much tends to happen. Like the prices on the board better last week? Not to worry, you'll probably see them again next week. And so on. Churn, churn, churn.

 

So, it sure seems like good times for option-shorting strategies. The Chicago Board Options Exchange (CBOE) indexes several, including the CBOE S&P 500 PutWrite Index (PUT):

 

"On Friday, May 8, the CBOE S&P 500 PutWrite Index (PUT^SM) closed at 1501.08, its highest all-time daily close and the first time the index closed above 1500. PUT is an award-winning benchmark index that measures the performance of a hypothetical portfolio that sells S&P 500^® Index (SPX) put options against collateralized cash reserves held in a money market account."

 

That, of course, makes some sense. Over time, a strategy that mimics PUT does quite well. But here's what's a bit odd: It hasn't done terrific in 2015, at least on a relative basis. Here's PUT vs. the SPDR S&P 500 ETF Trust (SPY) for this year:

 

Chart courtesy of TDAmeritrade thinkorswim
​

It's about 100 bps better than SPY, which is nice, but it's literally only accomplished that in the last couple days. It actually modestly trails another very similar CBOE index: CBOE S&P 500 BuyWrite Index (BXM). PUT indexes rolled put sales, whereas BXM indexes rolled buy-writes. They sound like they should track almost identically -- and they do -- but BXM has outperformed a bit all year.

​

It's important to remember that these are indexes, not funds. So, why would the theoretical buy-write outperform an identical put sale? It really shouldn't; they should be essentially equal, if it's the same strike. And selling puts might tie up less capital. But what if I told you there was an even better way to take advantage of the range in 2015 than either of these?
​

Remember our friend the VelocityShares Daily Inverse VIX Short-Term ETN (XIV)? It's the inverse of the iPath S&P 500 VIX Short-Term Futures ETN (VXX). It's not identical to selling puts, but it should behave in a similar fashion. The contango drift in VXX mimics the time decay of a regular option. Here's XIV vs. PUT in 2015:

​

Now THAT'S outperformance. Of course, you can't get that without risk. Volatility has declined across the board this year in a big way. That's mostly thanks to the pop at the end of 2014, and the pleasures of arbitrary endpoints. If we get a vol pop, XIV might wildly underperform SPY and PUT and BXM in shorter time frames. All of which highlights an oddity of the strategies highlighted by PUT and BXM: Options-writing strategies reduce the volatility of returns!

 

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

 

Amid all the excitement this week of ... well, nothing in particular ... we had the "largest CBOE Volatility Index (CBOE) options trade ever"! Yes, on Tuesday, VIX saw a humongous call spread, per Jamie Tyrell’s VIX Sonar Report.

The trader basically bought the June-July 23 call spread twice vs. selling the June-July 17 spread one time. He believes the June portion of the trade is closing -- in other words, it's a roll out of a 2x1 spread, making the initiator long two of the July 23 calls vs. short one July 17 call.

Oh, and he did it many times. Assuming it's a roll, he’s now short 180,000 of the July 17s vs. long 360,000 of the July 23s. It cost him $0.11 per spread ... so a total of $1,980,000.

If that sounds like a lot, well, consider that it's on top of whatever he paid for the Junes to begin with, not to mention that maybe it's a position he’s rolled many times over. It's best to annualize it -- so, we’re talking a $24 million play by that metric.

Of course, we have to assume it's a big player, and he’s only plunking down a modest percentage of his portfolio on this ... or else he’s got a real opinion on VIX! So, what does one accomplish with this sort of play?

Well, VIX itself was higher earlier in the week, but it's near 13 now, so both sides are a ways away from the money. Or so it seems. But remember: This is VIX and these options are on VIX futures, and VIX futures always price in a VIX rally. July VIX is 16.65 as U type, so I assume it was very near 17 when the trade went up -- thus, the small side is actually an at-the-money-ish strike. The trader essentially put on a backspread.

A backspread works great if there’s a quick pop in the underlying. That’s especially true in VIX, as the world loves speculating on out-of-the-money VIX calls. If VIX does pop soon, the July futures will lift a bit and this spread should do well. The trader now has ammo to fade it with VIX sales, SPDR S&P 500 ETF Trust (SPY) buys, or whatever.

On the other hand, a spread like this is a disaster in a grind up. If VIX grinds to the low 20s, he stands to get mauled. That’s unlikely though, as VIX doesn’t tend to grind up.

To me, his biggest risk is time. He needs a VIX pop fairly quickly. If it happens too close to July expiration, the calls just aren’t going to generate enough interest. Twenty-three doesn’t seem like an enormous level for VIX, but requires a nearly 80% pop from our current malaise.

All of which is why it's nice when you can put on backspreads for credits. It always sounds like the next vol pop is right around the corner, but most of the time VIX is a show about nothing. And it's mid-May, so we’re not exactly heading into a seasonally strong time to own vol. Getting the credit at least gives you a small win. But alas, VIX is not your typical option. The skew is positive, so the higher the strike, the higher the vol -- meaning you have to go pretty wide on a 2x1 backspread to get to slap it on for a credit.

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

You know that old saw about no one being able to create a volatility exchange-traded product based on the "cash" CBOE Volatility Index (VIX)? I'm pretty sure I've played a role in that "saw," as I didn't see a way around a few obstacles.

Well, I may get proven wrong. AccuShares is set to list a couple of interesting products on Tuesday: AccuShares Spot CBOE VIX Fund Up Shares (VXUP) and AccuShares Spot CBOE VIX Fund Down Shares (VXDN). This, from their fact sheet:

"AccuShares Spot CBOE VIX Fund Up Class Shares are designed to track the changes in specified measures of price volatility of the S&P 500 Index^® occurring from the prior Distribution Date to the next Distribution Date or a Measuring Period. Because the fund could make period Distribution on a monthly basis, the Funds should be considered a short term investment in volatility and if held for the entire Measurement Period will be a one month investment horizon.

"… Unlike other exchange traded products, the fund will engage principally in cash distributions and potentially paired share distributions to deliver to the shareholders the economic exposure to the funds's underlying index, the CBOE Volatility Index. Such distributions may not represent any income or gains on the fund's eligible assets and may represent a return of shareholder's capital. Each fund will issue its shares in offsetting pairs, where one constituent of the pair is positively linked to the funds's underlying index ("Up Shares") and the other constituent is negatively linked to the fund's underlying index ("Down Shares"). Therefore, the fund will only issue, distribute, maintain and redeem equal quantities of Up and Down shares at all times."

Sounds simple, right? But wait, there's more:

"On any Distribution Date where the VIX closes at 30 or below, the Daily Amount on any day will be 0.15% of the Class Value per Share as of the most recent Distribution Date. The Daily Amount will be subtracted from the Up Share Class Value per share. Under the described circumstances, the daily amount will be added to the Down Share Class Value per Share. Otherwise, the Daily Amount will be zero. The Daily Amount is intended to reflect an attribute of the market for long financial instruments seeking exposure to the expected volatility of the S&P 500 Index implicit to options contracts on the performance of the S&P 500 Index. As reflected in the historical performance of the VIX, the market for such long instruments deteriorates over both long and short term time frames as both S&P 500 Index volatility and the VIX tend to return to a mean level. Under these circumstances, a long position (as represented by the Up Shares) on the VIX will tend to decrease in value over time while a short position (as represented by the Down Shares will tend to increase in value."

OK, it doesn't sound simple. I talked with some folks at AccuShares, and will give this my best stab.

You're essentially betting on the direction of VIX itself -- unlike basically all other derivatives which generally let you bet on the future of VIX. The combo should roughly come out to VIX itself, but it won't be perfect.

First off, there's the 0.15% daily amount that's subtracted from Ups and added to Downs. It's not a randomly chosen number; rather, it's designed to offset the mean-reversion tendencies of VIX.

There's also day-of-week biases involved. Mondays, for example, are typically "up" days for VIX. It averages about a 2%-to-2.5% rally over the long course of time.

Why not just buy VXUP every Friday afternoon? Well, presumably, you won't be able to at VIX "parity" on most Fridays. You will theoretically "overpay" slightly on balance, and it will come out in the wash on the distributions.

So, let's make a couple of assumptions here. One is that the 0.15% number they use for distribution calculations properly accounts for the mean reversion. And the other is that the market will properly price in VIX calendar works. If that's the case, then we're left with two instruments that basically let you speculate on the direction of the VIX.

If that's true, then I think these products are really going to take off. It will prove way less confusing than iPath S&P 500 VIX Short-Term Futures ETN (VXX) and VIX futures. And it fills a niche in that actual VIX is what most players really want to bet on, hedge with, or whatever.

I'd like to see it in action, though, before declaring victory -- or VIX-tory. Perhaps there's a quirk here that I'm missing. We shall see, and soon.

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

I'm cautiously optimistic that the new AccuShares Spot CBOE VIX Fund Up Shares (VXUP) and AccuShares Spot CBOE VIX Fund Down Shares (VXDN) will improve upon our current menu of tradable CBOE Volatility Index (VIX) products. Maybe it will even (gasp!) allow us to speculate on the actual VIX as opposed to some replication of VIX futures.

I asked for some opinions on Twitter and, well … not everyone shares my optimism. Here's a sampling:

@schaeffers @agwarner they will still trade just like the futures, expect with 4.5%/month roll (near average) regardless.

— Brian Clark (@troll1184) May 18, 2015

@agwarner @schaeffers yeah, expires at a future value that depends on VIX, which is mean reverting and fat tailed. (1/x)

— Brian Clark (@troll1184) May 18, 2015

@agwarner @schaeffers also doesn't factor in enough roll for the last 30 days, should be more like 7.5% instead of 4.5% (2/x)

— Brian Clark (@troll1184) May 18, 2015

@agwarner @schaeffers these will trade massive away from the indicative value because of these. (3/x)

— Brian Clark (@troll1184) May 18, 2015

That 4.5% is the daily roll of 0.15% x 30 days. It's designed to account for the mean reversion of VIX (always remember -- it's a statistic and not a stock). I don't dispute that different people studying the numbers can derive a different end result on the proper number to use and produce a number that's defensible. My guess is the disparity has to do with the fact that today's mean reversion can offset tomorrow's mean reversion and net to zero. Should that be additive, though? I'm not entirely sure, but that's why I suspect they reach different conclusions.

@agwarner @schaeffers 90% of VXUP and VXDN will be half math.

— Trading Volatility (@tradevolatility) May 18, 2015

I do 80% agree, but there's only a 40% chance he's right on this. OK, seriously, he has a very good write-up on the product here.

@agwarner The maximum gain in a month is capped at 90%. An embedded call option for VIX shorts?

— Jake (@EconomPic) May 19, 2015

That is true, as per the fact sheet. It's capped on the downside, too, though it's hard to imagine a scenario where it loses 90% of its value in a month. You do need this cap, however, given the 1:1 Creation/Redemption relationship between VXUP and VXDN. A lift of 100% or more would have a worse reaction than Independent George meeting Relationship George.

And finally, the big question. Is this just a VIX future in disguise?

@agwarner @stevenplace the only difference I see are the special distribution days which are something like an instant expiry.

— Alexander Aljechin (@aaljechin) May 19, 2015

The distributions accumulate for 30 days, and then at the end of that period they get paid out to the "winner." Does distribution day now become de facto expiration day of essentially a VIX future? It might. I'm going to reserve judgment on this until we see it trade for a bit. But if that's the case, we haven't accomplished much here.

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

I spilled a lot of ink this week on the AccuShares Spot CBOE VIX Fund Up Shares (VXUP) and AccuShares Spot CBOE VIX Fund Down Shares (VXDN). Frankly, I was hoping to get better insight on them once I saw the "live" markets, but so far, no luck.

The early look shows only that the markets are kind of wide. I've seen $0.50 and even up to $0.75 bid to ask. Volume is kind of low, which would indicate that many are in the same "watch and wait" mode. I'm still hopeful they take off, but we'll have to wait on that. But hey, there's still our whole wild and pre-existing Volatility World out there to tell us something, right?

The CBOE Volatility Index (VIX) itself continues to hover in this 12-14 range, as it has for most of the last couple months. And it's still hard to argue there's anything noteworthy about that. Ten-day realized volatility has tamped down; it's now about 9. Given that 4-point implied over realized premium represents somewhat of an equilibrium, there's not much external pressure out there on options prices.

Well, maybe there's one source of external pressure: The long Memorial Day weekend is upon us, and it's not likely we get one of those Fear of Tuesday Gap moments in volatility. Rather, Fear of Paying 3 Days' Decay With No Enormous Prospect for Market-Moving News looks likely to win out, and we may see VIX temporarily dip further. But hey, don't tell VIX futures traders!

Nothing ever changes here. We're always six months away from a lasting VIX rally.

The iPath S&P 500 VIX Short-Term Futures ETN (VXX) hit new all-time lows again this week, which is hardly newsworthy. And if VXX is doing poorly, the souped-up, leveraged VXX derivatives aren't doing too well either. The ProShares Trust Ultra VIX Short Term Futures ETF (UVXY) had a huge rally yesterday … if you neglected to factor in that it split 1:4. This marks the fifth reverse split in the short and inglorious history of UVXY. And hey, there's a trading strategy associated with the split.

Historically, shorting $UVXY after each reverse split has been a trading strategy with 100% win ratio.

— NoanetTrader (@NoanetTrader) May 20, 2015

Of course, we can actually expand our study.

@NoanetTrader @jedimarkus77 lol....also shorting $UVXY on any day ending in "Y" has a 100% win ratio

— adam warner (@agwarner) May 20, 2015

I suppose that depends on your time frame … But yeah, UVXY remains horrible.

Perhaps the most interesting thing is that we're still tracking 2014 pretty well. If that holds up, we have a couple more months of a low-volatility grinding rally ahead of us, followed by a modest spike up in mid-July. I doubt we track exactly, but it's food for thought.

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