Jun 1, 2015
Volatility Review: The week in review, from a
- Some action earlier this week as S&P
dropped over 1% and VIX popped to the 14 handle.
- VIX Futures: Front month future flirted with
15 during the selloff.
- VIX Options: Anemic volume week post-holiday
- only 63k contracts through 11am. Still mostly call buyer in June
- primarily VIX. Total 6.06m (4.73m Calls, 1.33m Puts)
- VXX: Puts trade in iPath S&P 500 VIX
Short Term ETN (VXX) are up 0.34 to 19.02 today. VXX is near the
lower end of the 52 week range.
- VXST: Volume: 0, OI: 4. VXST will be replaced
by VIX weeklies probably by the end of the summer depending on VIX
weekly approval and launch.
- Crude Oil: OIV: 33.04; OVX: 32.5
Volatility Voicemail: Listener questions and
- Question from Aeschylus - One thing I cannot
understand clearly is why there is so much focus on the volatility
smile. Given my knowledge of the Black and Scholes model, this is
what I get: People use the volatility smile as a forecast of future
volatility. They assume that the market is 100% efficient and
everyone would engage in dynamic hedging if they could or that
everyone agree that the Black and Scholes model gives the "fair"
price for the option, whatever it means to them. Therefore any
difference between the market price and the BS price shouldn't be
interpreted as an opportunity for arbitrage or a presence of model
risk, but what 'the market' is saying the BS parameters should be,
in special the volatility the market is predicting for the future
time until the maturity of the European option.
- Question from James Bass - Why is IV
different between put and call of same strike? In his book Dynamic
Hedging Nassim Taleb says that the volatility of an OTM put should
be exactly equal to that of a corresponding in the money call of
same strike. But in option chains, the calls always have a slightly
higher IV than the corresponding put. Is this because I am looking
at American option chains and not European?