2016 VIX Futures Expiration Days And Roll Period Lengths

In preparation for trading VIX ETPs in 2016, I wanted to share the expiration date for all monthly VIX futures next year as well as the number of days in each roll period. Table below (source calendar).

Expiration Date           Roll Period Length
- Ending January 20:          23 days
- Ending February 17:        19 days
- Ending March 16:           20 days
- Ending April 20:              24 days
- Ending May 18:              20 days
- Ending June 15:              19 days
- Ending July 20:               24 days
- Ending August 17:           20 days
- Ending September 21:     19 days
- Ending October 19:         20 days
- Ending November 16:      20 days
- Ending December 21:      24 days

2015 VIX Futures Expiration Days And Roll Period Lengths

As we get ready to head into 2015, I wanted to share the expiration date for each VIX futures month next year as well as the number of days in each roll period. Table below (source calendar).

Expiration Date           Roll Period Length

- Ending January 21:          22 days

- Ending February 18:        19 days

- Ending March 18:           20 days

- Ending April 15:              19 days

- Ending May 20:              25 days

- Ending June 17:              19 days

- Ending July 22:               24 days

- Ending August 19:           20 days

- Ending September 16:     19 days

- Ending October 21:         25 days

- Ending November 18:      20 days

- Ending December 16:      19 days

2014 VIX Futures Expiration Days And Roll Period Lengths

As we head into 2014 I wanted to share the expiration dates for VIX futures in each month as well as the number of days in each roll period. Table below (source: CBOE Expiration Calendar).

Expiration Date           Roll Period Length

- Ending January 22:          22 days

- Ending February 19:        19 days

- Ending March 18*:          19 days

- Ending April 16:              21 days

- Ending May 21:              24 days

- Ending June 18:              19 days

- Ending July 16:               19 days

- Ending August 20:           25 days

- Ending September 17:     19 days

- Ending October 22:         25 days

- Ending November 19:      20 days

- Ending December 17:      19 days

*March expiration occurs on a Tuesday

Updates To XIV And ZIV Roll Yield Calculations; List Of Number Of Days In Remaining 2013 Roll Periods

I made a slight adjustment to the calculations of the roll yield per week for XIV and ZIV on the VIX Futures Data page. The values shown now factor in the exact number of days in the roll period (previously the calculation used a constant 21 days as an approximation).

The impact of this change is a reduction of the yield estimates that were reported yesterday by about 0.2% since the roll period for ending May 21st contains 25 days.

Below is a list of the number of days in the remaining roll periods this year.
- Ending June 18:   19 days
- Ending July 16:    19 days
- Ending Aug 20:    25 days
- Ending Sep 17:    19 days
- Ending Oct 15:    20 days
- Ending Nov 19:    25 days
- Ending Dec 17:   19 days

For more information on roll yields see this post.

Daily Wrap, April VIX Expiration, and VXX Forecast for 4/17

The term structure reverted back to a (slight) contango today with April and May separated by 0.8 points, as seen in the term structure from the VIX Futures Data page.

Since VIX futures roll tomorrow morning I care more about the May and June futures, which are separated by 0.95 points.  This will set up to be a good chance to buy XIV if the market can find any foothold tomorrow. One problem with the trade, however, is that VIX is not really overpriced here. Historical (actual) volatility over the past month is now 13.47, with VIX just 3.7% higher, as shown in the HV vs IV chart:

Sellers of options want to collect a premium that is reflective of historical conditions and future risks and it remains to be seen if traders think that the action in the past couple days was just a fluke. If we can get some calm days in the market, both VIX and HV21 will drift lower, possibly as low as actual volatility over the past 3 months (HV63) which is currently around 11.0 -- ~20% lower than where VIX is currently.

The other risk to the trade is that May futures aren't really overpriced either. At 14.75, May VIX futures are just 5.6% above spot VIX, meaning there is not much buffer to absorb a spike in VIX, making a sharp drop in XIV very possible if the market sees more selling.

In addition to the roll yield of about 1.4% per week on XIV, another positive data point for the trade is that the market is down 1.2% over the past three days while VIX is up 14%. This suggests that the move in VIX may have been overdone, especially if you think the market has already priced in risk from what has happened over the past few days..

Taking a look at the the VXX Forecast for tomorrow (preview), we can see that the roll yield and risk of a VXX spike reflect the numbers discussed above.

Weekly Wrap 4/12: Easy Money

Pretty nice week for those owning XIV with a 8.8% gain.  Term structure and VIX declined substantially and remain in contango producing a roll yield over 2% per week for XIV and almost 3% for ZIV (see VIX Futures Data page).  View of the term structure week over week:

Looking Ahead:
Next Wednesday April VIX futures expire and all months roll forward. You can expect April VIX and spot VIX converge as we get closer to Wednesday.  Right now April is ~5% higher than VIX so there's some  premium left but not much. Don't expect disproportionate downward moves from VXX this time around.

We've been in a pattern in the market lately where it is ridiculously easy to make thousands of dollars just buying the dips of XIV in the morning and selling during the afternoon melt-up. Cash out and repeat the next day. Seems to be a common occurrence and everyone is on to it, making me wonder just how much longer that pattern will last. This is trend we are currently in and I choose to play along rather than try to short it, but I remain very cautious with what I hold overnight.

Checking in on the VXX Daily Forecast for Monday, we can see that it has changed very little over the past week due to a pretty consistent contango term structure and positioning of front month futures relative to VIX. The bias remains slightly negative after today, however the risk of a spike edged up a bit.

Weekly VIX ETF Performances vs S&P 500:
XIV:     +8.8%
ZIV:      +5.2%
VXX:    -9.2%
UVXY:  -17%
SPY:     +2.3%

Looking at the New VIX Futures Months After March Expiration

Today is the last day of trading for March 2013 VIX futures.  As discussed would happen in my week ahead post, March futures closed within about 3% of VIX.

Closing term structure:

Looking forward to tomorrow April currently sits at 15.4 and May at 16.25 resulting in a smaller contango spread of -0.85, which applies to XIV, VXX, and UVXY. With VIX at 14.39, April VIX futures are just 7% higher.

For those looking at trading ZIV, the contango spread between month 4 and month 7 will start narrower at -1.5 tomorrow.

Implied volatility has popped up a bit off of realized volatility, but with a volatility risk premium of 26% VIX pretty well priced once more. Here is the current chart from the VIX Futures Data page:

There was not much room to play in the intraday SPY arbitrage model today as the model stuck closely to the SPY.

And in case you missed it I posted about a new tool today to measure Twitter sentiment on VXX which was positive earlier in the day but is unsurprisingly heading toward 50/50 as VXX ended the day flat.

The Week Ahead In VIX Futures

Last week wrapped up with VIX and front month futures down heavily, to the point where our normally smooth curve is starting to resemble a cliff.  VIX Futures term structure week over week:

While it is not abnormal to see the front part of the curve steepen as front month futures converge with spot VIX as expiration draws closer, forward 30-day volatility (VIX) is now less than actual realized volatility over the past one and three months, suggesting that VIX is underpriced (a negative volatility risk premium).

Historical volatility vs implied volatility chart from Friday:

With March futures currently 11% above spot VIX it should be noted that this convergence can happen by having a rising VIX, not just a declining front month as some may have grown accustomed to.

VIX Pushing Lower Bounds Set By Historical Volatility

Protection through the purchase of options became even cheaper today as 30-day forward implied volatility (VIX) hit 11.46 -- just 2% above actual realized volatility for the past month (HV21) of 11.24. HV21 is now also roughly equal to the actual volatility over the past three months (HV63), which as I discussed previously, can be used as a reasonable lower bounds for VIX.

Below is a view of today's HV vs IV chart from the VIX futures data page to illustrate where VIX is in relation to historical volatility (three month view):

Next is a view of VIX vs HV63 from June 2004-Present which shows how HV63 can be used as a rough approximation for the lower bounds of VIX in the immediate future under most circumstances:

And while it is possible to say that VIX is running out of room to fall given current levels of historical volatility, VIX futures are another story entirely. As the VIX futures expiration date approaches (March 20th), March VIX futures and spot VIX are likely to converge to within a couple percent of each other (discussed here). At 9% above VIX there is quite a ways for March VIX futures, and consequently VXX, to fall -- assuming spot VIX remains near its current levels.

Looking at April VIX futures, which will become front month futures used in the calculation of VXX and XIV after March expiration, you can see that they now trade at 14.7, more than 27% higher than spot VIX right now. This will provide a new catalyst for a lower VXX and higher XIV as long as VIX remains flat.

March VIX Futures Expiration Date and a Suppressed VIX

It's one of those unusual months for VIX where there are 35 days between monthly options expiration day instead of 28 as March options expire on the 15th and April options expire on the 19th. This means that March VIX futures don't expire until the 20th this month, since VIX futures always expire 30 days before the next month's options expire. If you don't like counting you can always find a calendar for VIX futures expiration here.

This extended month also causes some issues with the value of VIX during the next week when calculating its constant 30-day volatility.

VIX is calculated using weighted values of near-term (VIN) and next-term (VIF) options of the S&P 500, with near-term options having at least one week to expiration (values can be found on the CBOE's page). Once options expiration is less than a week away VIX rolls to use the next term's values as the new near-term value, weighting the new VIN with a value of 1 and the new VIF with a value of 0. As the month progresses the value of these weights shift toward VIF until the next expiration when VIF has the weight of 1 and VIN has the weight of 0.

For example, if you look at the value of March and April values on the  CBOE's page you will see that current values are 10.47 and 12.71, respectively.  Looking at VIX today you will notice that it is essentially equal to the April VIX value (this should not be confused with April VIX futures).

Since options expire next Friday, VIX must use April and May as VIN and VIF values. However, since both April and May expiration are more than 30 days away, the near-term weight is greater than 1 and the next-term weight will be negative.

Specifically, on Monday April will have a weight of 1.25 and May will have a weight of -0.25.  From there the roll continues as usual with weights shifting a little bit each day (on Tuesday the weights are 1.2 and -0.2, then 1.15 and -0.15 on Wednesday, etc.).

As an example using current values of April and May of 12.71 and 13.76, come Monday VIX will be calculated by (1.25)*(12.71) + (-0.25)*(13.76) = 15.89 - 3.44 = 12.45. You'll notice that the VIX here is actually less than both VIN and VIF, which seems abnormal but is not unusual during these weeks. Sometimes this results in a temporarily suppressed VIX, especially when the next-term month is priced substantially higher than the near-term month.

For more information on how the VIX is calculated see the CBOE's VIX white paper.

What To Do Now? Historical Volatility Falls Under 10 As We Reach Another VIX Futures Rollover Day

VIX futures rolled over today with February futures expiring and March becoming front month. With March as front month the situation looks like this (data can be found on my market data page):

- Front month futures (M1) are 13% above spot VIX and 33% higher than actual realized volatility over the past 3 months (HV63).
- Actual volatility over the past 30 trading days (HV30) has dropped to 9.93, which is 30% lower than spot VIX
- The first month and second month (M1-M2) are in contango with a spread of -0.95, giving XIV a slight bullish bias
- The 4th and 7th month (M4-M7) are in contango with a spread of -1.8, giving ZIV a bullish bias

From the information above you can see that M1 is pretty overpriced when compared to forward volatility (VIX) and historical volatility, meaning that there is still room for XIV (inverse short-term VIX futures) and ZIV (inverse med-term VIX futures) to move higher.

However, now that we are halfway through the 7th straight week of gains on the S&P 500 and VIX futures have pressed down to levels not seen in over half a decade, I'm not finding the risk/reward in my typical XIV and ZIV trades to be justified.

There is the theory that since VIX is so low it makes sense to be long VXX (short term VIX futures). This may seem like a good idea but it is in fact a money loser 90% of the time for reasons I've previously explained here.

I've posted several trades on this blog (two January and one February), which at 13.4% have returned roughly twice that of the S&P 500 this year. At this point I feel there is little reason to chase gains at multi-year S&P 500 highs.

Which leaves me with option 3: doing nothing. I believe that you don't always have to be in a trade and it is necessary to patiently wait for an opportunity where you have a good setup. Stay tuned.

Various Market Notes

The S&P 500 oscillated around 1510 today closing just barely in the green (again) to drive historical volatility back down a bit. It wouldn't be surprising to see VIX dip back in to the 12s with more days like this.

VIX futures roll over next Wednesday as February (current front month) VIX futures expire. There is currently a 5% premium of front month futures over spot VIX.  This premium tends to approach zero as we get closer to expiration day, providing a headwind for VXX (a concept I previously outlined here).

Tomorrow a fragile Apple (AAPL) issues its dividend of $2.65, which will be deducted from its share price. It will be interesting to see if buyers step in to hold the price up.

Why VXX is Such a Killer (Five-Months View of VIX Futures Data)

I thought it might be helpful to some readers to see a snippet of the vast amounts of data I track and analyze in my pursuit of developing the strongest possible volatility trading system I can build. Therefore, I've added a VIX Futures Data tab on my website which plots out the most recent 5 months of VIX and VIX Futures data in to an interactive chart (while I have data going back to 2004 in Excel, I'm not quite sure Google Docs can handle it).

Since the graph on the website uses flash, I've included a static image in this post so that it can be visible in your emails and RSS feed.

This graph shows the closing daily values of the spot VIX and the first 7 months over the course of the last five months. If you've never seen the VIX futures plotted out like this, allow me to point a few things out.

1) Contango, the condition in which contracts for near term months are less expensive than contracts further out in the future, is clearly visible at most points. On Nov 23rd, for example, Dec contracts are cheaper than Jan, which are cheaper than Feb, which are cheaper than March, and so on.

2) Last day of the roll period. The vertical lines in the middle of each month indicates a monthly contract has expired. At this point, all months advance forward one month (2nd month becomes the 1st month, 3rd becomes the 2nd, etc) and you can see a new 7th month added into the mix (towards the high side of the graph). Try following the purple line - where does it go? The constant rolling of VIX futures during contango, despite a mostly sideways spot VIX, is what causes VXX and UVXY to lose so much money (and inverse products such as XIV and ZIV to gain so much).

3) Compression.  We've come a long way in five months.  In late August 2012 it was hard for front month futures (light blue line) to get below 19.  Fast forward to today and you can see that seven months of futures are below 19 and have compressed to less than 5 points, something that hasnt happened since mid-2007. In other words, the market has priced in very little volatility between now and August 2013. Think about what the current level of compression says about the future price movement of XIV, VXX, and ZIV.

I'm hoping this graph will update dynamically but I'll have to wait until Monday to know for sure.  In the meantime, let me know what you think.

Secrets of VXX: Convergence of Front Month VIX and Spot VIX at Expiration Date

VXX (-1.6%) was down moderately today in a move that may look abnormal considering the moves in spot VIX (+1.2%) and SPY (-0.07%). However it's not unusual at this point in the VIX futures cycle and today I'll explain the mechanics behind this move.

First, remember that VIX futures are a measure of the expected 30-day implied volatility on the expiration date for a given month and that spot VIX is the current 30-day measure of volatility, as explained here.  Since January VIX futures expire tomorrow you can expect these two values to converge as we approach expiration day.

As of Friday the January futures were nearly 6% higher that spot VIX.  What we saw today was the convergence of these two points. Falling front month futures drove VXX down and XIV up. By the end of most VIX futures expiration days you can expect front month futures and spot VIX to be within 2-3% of each other (at the close today that gap was down to 4%).

There is, of course, no guarantee that VXX will go lower in the days before expiration.  Consider the scenario of a sharper rise in VIX. Front month futures still need to converge toward spot VIX at expiration but since front month futures start with a 6% buffer above spot VIX (in this case) you can expect any upward move in VXX to be muted.

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Disclosure: Short VXX; Long XIV