Monday, October 26, 2020

Performance of the VIX in the Two Weeks Before and After Presidential Elections

A convergence of concerns related to stimulus, elections, COVID-19 and earnings (courtesy of a big SAP earnings miss) caused the VIX to jump 17.8% today.  How much of that was related to the election?  Well…the 9-day VIX9D spiked 47.8% today, now that the election is within the 9-day measurement window for the first time.  The bottom line is that election uncertainty and anticipated volatility is currently a huge factor in the mindset of the investor.

This raises the question of how jumpy the VIX tends to be in advance of elections and what happens after the election.  If you know anything about what happens to the VIX around FOMC announcement days, you will find considerable similarities when it comes to elections.  Specifically, the VIX responds to the upcoming event risk by increasing steadily into the event, dropping sharply on the day of the event and declining even more as the event recedes in the rear-view mirror.

Of course, most think this election is different.  While that is certainly true, all elections are unique in their own way and yet the same general principles apply.

Note that in the graphic below I normalized all the VIX readings from 1992-2016, with the exception of 2008, which just happened to fall at the height of the Great Recession, so the 2008 data is excluded, as it would otherwise skew the results.


[source(s):  CBOE, Yahoo, VIX and More]

Further Reading:
The VIX and the Pre-FOMC + Post-FOMC Trades
VIX Trends Around FOMC Announcement Days
VIX Price Movement Around FOMC Meetings
Post-Election Risk Trending Up in Treasuries and the Euro, Down in U.S. Stocks
VIX Sets New Record with Nine Up Days in a Row
Top VIX Crushes in History
How to Trade Options Around Volatile Events (Barron’s)
A Conceptual Framework for Volatility Events
Volatility During Crises
Fear Poll: Fiscal Cliff Fears Spike, Concerns About Excessive Central Bank Intervention Rise
Fiscal Cliff Worries Grow As Election Nears
The Hollande Discount
Chart of the Week: Intrade and the Midterm Elections
Chart of the Week: Intrade and Control of the House of Representatives

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): none

Sunday, October 25, 2020

Updating the Current VIX-Based ETP Landscape

There is a lot going on in the markets, with several themes weighing on volatility or the potential for more volatility.  COVID-19 cases are spiking to new highs in Europe and the U.S. and could be at an inflection point in the U.S.  Election uncertainty is also unnerving investors with the election only nine days away.  Lasts and not least, markets are strongly influenced by the Pelosi-Mnuchin stimulus dance, which appears to have migrated from a tango to a polka – but at least the music is still playing.

In the time since I was a regular contributor in this space, a lot has happened in the volatility world and the VIX ETP space has also changed dramatically.  For this reason, it seems like a good time to update a favored VIX ETP graphic to reflect the many products that have closed, matured and been moved to the pink sheets.  In keeping with tradition (this graphic has been published many times in various incarnations since 2010), I have plotted all of the VIX ETPs with respect to their target maturity (X-axis) and leverage (Y-axis).

It has taken more a decade, but the bottom line is that the VIX ETP space has essentially been narrowed down to two dominant products:

VXX (iPath Series B S&P 500 VIX Short-Term Futures ETN) – the pioneering +1 long volatility ETN that launched back on January 30, 2009 and has been the dominant product in the VIX ETP space throughout its lifetime

UVXY (ProShares Ultra VIX Short-Term Futures ETF) – the +1.5x ETF that spent most of its life as a +2x product and moved to +1.5x following the February 2018 Volmageddon event which resulted in the termination of XIV

Both VXX and UVXY trade an average of over 30 million shares per day and both are regularly in the top 5-10 highest volume ETPs as well as ETP options volume leaders.  The remaining VIX ETPs have been largely relegated to niche product status.  Additionally, Credit Suisse delisted and suspended its VelocityShares ETNs, meaning that the former TVIX, VIIX and ZIV now trade in the OTC market under the symbols TVIXF, VIIXF and ZIVZF.  For this reason and because of low liquidity and the increased risk with trading on the OTC “pink sheets.” I have highlighted these tickers in red.

[source(s):  VIX and More]

Further Reading:
VIX ETPs Flash Some Green in 2016
Every Single VIX ETP (Long and Short) Lost Money in 2015
Performance of VIX ETPs During the Recent Debt Ceiling Crisis
Expanded Performance of Volatility-Hedged and Related ETPs
Performance of Volatility-Hedged ETPs
Performance of VIX ETP Hedges in Current Selloff
Slicing and Dicing all 31 Flavors of the VIX ETPs
Charting the Assets of the Volatility-Based ETPs

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): net short VXX and UVXY at time of writing

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