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VIX Bounces, VIX Futures Maintain Premium

Posted by Scott Murray on February 28, 2013
Posted in: Uncategorized. Tagged: analytics, derivatives, futures, Options, VIX, Volatility, VXX.

As Mr. Market remains skittish (at least he can remember as far back as Monday), and PM’s basically rushed to the door in the last hour of trading today, volatility rose 10% in the last two hours of the day. The calendar has an amazing effect on money managers. What goes on paper on 2/28, or 12/31, or whatever is music to exchange commission toll-takers. Get out and print that 1% return for the month before it disappears.

If you don’t believe that these guys fear the calendar, get a load of this article. This option trading fund got sick of trying to hedge positions just for the month-end print. So they changed their statement date to match the monthly options expiration date. Geez, how brilliant! Instead of throwing client money away trying to make themselves look good, they  merely changed the accounting. This should not be a novel idea:

http://www.futuresmag.com/2013/02/01/black-deans-options-evolution

And then tomorrow is a new month, which of course, usually means putting it back in. Here’s a shocking statistic:

From the Cialis 10mg Traders Almanac:

“Over the last 15 years, the Dow Jones Industrial Average has gained more points on the first trading days of all months than all other days combined.”

First days since 1997: 5551 Dow points, +31.36 pts/day

All other days: -804 Dow points, -.23 pts/day

Game plan:

VIX front and near month futures held their ground all day and the VIX was all over the place. These two will get highly correlated as we head toward expiration, and that generally means that volatility will fall. March historically sees a fall in volatility toward the end of the opex cycle, it is sharp and distinct. We will be looking to grab cheap VXX puts on spikes in volatility.

Symbol Contract Month Time Last Change Open High Low
VX G3-CF CBOE VIX FUTURES February2013 16:44:34 13.07
VX H3-CF S&P 500 VOLATILITY March2013 16:15:00 16.10 0.70 15.30 16.20 15.08
VX J3-CF S&P 500 VOLATILITY April2013 16:15:00 16.70 0.60 16.05 16.70 15.70
VX K3-CF S&P 500 VOLATILITY May2013 16:15:00 17.05 0.30 16.65 17.20 16.40

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