There will be a very slight alteration of our publishing schedule in March. The first issue in March will be published on the normal day, the 2nd Thursday, which is March 13th. But the second issue in March will be published one day early, on Wednesday, March 26th. This is because of the AAPTA Conference in Austin (see page 5), to which I will be traveling on Thursday, March 27th (the usual publishing day).
In our last issue, we discussed the newest volatility product – the futures that have recently begun trading on the Short-Term Volatility Index ($VXST). One of the things that arose from that discussion was that $VXST “overshoots” $VIX on both the upside and the downside. That is, in periods of high volatility (spike peaks, for example) $VXST rises to higher prices than $VIX does. Conversely, in periods of low volatility, $VXST falls farther than $VIX does.
The CBOE has launched what may prove to be a very useful product – short-term $VIX futures ($VXST). The feature article discusses their terms and their potential usage. Also, there are comparative charts with $VIX and $VXST. If volume is decent, this should be an excellent product.
At face value, it certainly seems as if this new volatility product, the CBOE Short-Term Volatility Index (symbol: $VXST) will be useful and successful. In this article, we are going to look at all of the details (at least as far as they have been disclosed by the CBOE), as well as make some projections about how these new products might trade. These projections will be based partly on theoretical historic data, as well as what we know about how $VIX futures and options trade.
Forecasting this market with the Fed doing what they’re doing is really a very inexact chore. However, there are some historic parallels that can be drawn.
Recently, the “Skew Index” published by the CBOE shot upward, creating discussions around the option trading community as to its meaning. In the feature article, we take an in-depth look at whether a high $SKEW reading should call for caution in the stock market.
We always publish a table of the skew in $OEX options (page 9 in this issue), as a sample of how the major index options are skewed. We also talk about skew in relation to individual stocks and for particular strategies (horizontal skews for calendar spreads, or vertical skews for ratio spreads, for example).
Two days ago, I received notification from the United States District Court, Southern District of New York, regarding the matter of MF Global Holdings Ltd. Investment Litigation. The notice says that the Class (former commodity futures customers of MF Global) has settled for 100% of the net equity claims in the lawsuit. In other words, eventually people got their money back, but it took over two years.
