Interactive Brokers Webcast First Half 2014 Volatility Trading Review July 16, 2014 Presented by Russell Rhoads, CFA
Disclosure Statement Options involve risks and are not suitable for all investors. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling 1-888- OPTIONS, or from The Options Clearing Corporation at www.theocc.com. Futures trading is not suitable for all investors and involves risk of loss. The information in this presentation is provided solely for general education and information purposes. No statement within this presentation should be construed as a recommendation to buy or sell a security or future or to provide investment advice. Any strategies discussed, including examples using actual securities or futures price data, are strictly for illustrative and educational purposes only. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. Past performance does not guarantee future results. Supporting documentation for any claims, comparisons, statistics or other technical data in this presentation is available from CBOE upon request. The CBOE Volatility Index (VIX index) methodology is the property of Chicago Board Options Exchange, Incorporated (CBOE). CBOE, Chicago Board Options Exchange, CBOE Volatility Index, Execute Success and VIX are registered trademarks and CBOE Short-Term Volatility Index, GVZ, OVX, RVX, The Options Institute, VXEEM, VXEWZ, VXST and VXN are service marks of CBOE. CBOE and its affiliates do not sponsor, endorse, sell or promote any third party investment product that is or may be based on the VIX Index. CBOE and its affiliates make no representation regarding the advisability of investing in such products. S&P 500 is a registered trademark of Standard & Poor's Financial Services, LLC and has been licensed for use by CBOE and CBOE Futures Exchange, LLC (CFE). Financial products based on S&P indices are not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in such products. Russell 2000 is a registered trademark of Russell Investments, used under license. The NASDAQ-100 Index, NASDAQ-100, and NASDAQ are trademark or service marks of The NASDAQ Stock Market, Inc. (with which its affiliates are the "Corporations"). These marks are licensed for use by CBOE in connection with the trading of products based on the NASDAQ-100 Index. The products have not been passed on by the Corporations as to their legality or suitability. The products are not issued, endorsed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S). CBOE is not affiliated with Interactive Brokers. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-cboe product or service described in this presentation. Copyright 2014 CBOE. All rights reserved. THE OPTIONS INSTITUTE at CBOE 2
1H 2014 Volatility Trading Review Outline Tradable Indexes VIX ETPs First Half Trading Examples VIX Futures Calendar Spread Trading THE OPTIONS INSTITUTE at CBOE 3
CBOE Volatility Index 1H 2014 Price Action VIX vs. S&P 500 2000 1900 S&P 500 40 35 1800 30 25 1700 VIX 20 1600 15 1500 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 4
CBOE Volatility Index 1H 2014 in Context VIX Statistics 2004 1H2014 Average High Low H / L Range H/L Percent Range S&P 500 2004 15.48 21.58 11.23 10.35 92.16% 8.99% 2005 12.81 17.74 10.23 7.51 73.41% 3.00% 2006 12.81 23.81 9.90 13.91 140.51% 13.62% 2007 17.54 31.09 9.89 21.20 214.36% 3.53% 2008 32.69 80.86 16.30 64.56 396.07% -38.49% 2009 31.48 56.65 19.47 37.18 190.96% 23.45% 2010 22.55 45.79 15.45 30.34 196.38% 12.78% 2011 24.20 48.00 14.62 33.38 228.32% 0.00% 2012 17.80 26.66 13.45 13.21 98.22% 13.41% 2013 14.23 20.49 11.30 9.19 81.33% 29.60% 2014* 13.77 21.44 10.61 10.83 102.07% 6.05% Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 5
CBOE Volatility Index 1H 2014 in Context Average Daily VIX Option Volume by Month 900,000 800,000 Feb 2014 856,853 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 Jun-13 May-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 6
CBOE Volatility Index 1H 2014 in Context VIX Option Average Daily Volume by Year Avg. Daily Year Volume 2006 23,501 2007 93,181 2008 102,560 2009 132,392 2010 248,811 2011 391,994 2012 444,565 2013 568,403 1H2014 689,385 1H2014 Average is 21% Higher than 2013 THE OPTIONS INSTITUTE at CBOE 7
CBOE Volatility Index 1H 2014 in Context Average Daily VIX Futures Volume by Month 225000 Feb 2014 216,797 150000 75000 0 Mar-04 Jun-05 Sep-06 Dec-07 Mar-09 Jun-10 Sep-11 Dec-12 Mar-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 8
CBOE Short-Term Volatility Index SM 1H 2014 Price Action VXST SM vs. S&P 500 2000 45 1900 S&P 500 35 1800 1700 1600 1500 VXST 25 15 1400 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 9
CBOE Short-Term Volatility Index 1H 2014 in Context VXST Statistics 2011 1H2014 Average High Low H/L Range H/L Percent Range S&P 500 2011 24.48 68.00 12.81 55.19 431% 0.00% 2012 17.16 26.93 11.50 15.43 134% 13.41% 2013 13.85 23.54 10.20 13.34 131% 29.60% 2014* 13.21 23.95 9.25 14.70 159% 6.05% THE OPTIONS INSTITUTE at CBOE 10
CBOE Russell 2000 Volatility Index SM 1H 2014 Price Action RVX SM vs. Russell 2000 1225 1175 Russell 2000 50 45 40 1125 35 30 1075 RVX 25 1025 20 15 975 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 11
CBOE Russell 2000 Volatility Index 1H 2014 in Context RVX Statistics 2004 1H 2014 Average High Low H / L Range H/L Percent Range Russell 2000 2004 22.39 32.61 15.95 16.66 104.45% 17.00% 2005 19.06 24.94 16.20 8.74 53.95% 3.32% 2006 20.60 34.02 15.58 18.44 118.36% 17.00% 2007 23.47 37.14 14.44 22.70 157.20% -2.75% 2008 37.84 87.62 21.24 66.38 312.52% -34.80% 2009 38.68 62.84 22.56 40.28 178.55% 25.22% 2010 29.26 53.88 19.95 33.93 170.08% 25.31% 2011 31.28 57.66 18.97 38.69 203.95% -5.45% 2012 23.10 33.45 17.02 16.43 96.53% 14.63% 2013 18.12 24.52 13.65 10.87 79.63% 37.00% 1H2014 19.29 27.19 15.17 12.02 79.24% 1.16% Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 12
CBOE NASDAQ-100 Volatility Index 1H 2014 in Context VXN SM vs. NASDAQ-100 SM 4000 NASDAQ-100 35 30 3500 VXN 25 20 3000 15 2500 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 13
CBOE NASDAQ-100 Volatility Index 1H 2014 in Context VXN Statistics 2004 1H 2014 Average High Low H / L Range H/L Percent Range NASDAQ 100 2004 22.26 29.19 16.80 12.39 73.75% 10.44% 2005 16.29 21.85 12.61 9.24 73.28% 1.49% 2006 17.97 25.73 14.09 11.64 82.61% 6.79% 2007 20.72 34.94 14.83 20.11 135.60% 18.67% 2008 35.51 80.64 20.00 60.64 303.20% -41.89% 2009 31.79 54.45 19.47 34.98 179.66% 53.54% 2010 23.45 46.63 15.97 30.66 191.98% 19.22% 2011 25.02 46.61 15.85 30.76 194.07% 2.70% 2012 19.30 28.63 13.79 14.84 107.61% 16.82% 2013 15.14 22.07 12.03 10.04 83.46% 34.99% 1H 2014 16.11 22.65 12.03 10.62 88.28% 7.17% Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 14
CBOE Emerging Markets ETF Volatility Index SM 1H 2014 Price Action VXEEM SM vs. EEM 45 50 EEM 40 40 35 VXEEM 30 30 20 25 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 15
CBOE Emerging Markets ETF Volatility Index 1Q 2014 in Context VXEEM Statistics 2011* 1H 2014 Average High Low H / L Range H/L Percent Range EEM 2011* 34.77 64.10 20.59 43.51 211.32% -13.27% 2012 25.95 37.42 20.03 17.39 86.82% 19.06% 2013 21.96 38.00 15.00 23.00 153.33% -3.65% 1H 2014 21.73 31.16 14.91 16.25 108.99% 4.24% THE OPTIONS INSTITUTE at CBOE 16
CBOE Brazil ETF Volatility Index SM 1H 2014 Price Action VXEWZ SM vs. EWZ 55 70 50 45 EWZ 60 50 40 35 30 VXEWZ 40 30 25 20 20 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 17
CBOE Brazil ETF Volatility Index 1H 2014 in Context VXEWZ Statistics 2011* 1H 2014 Average High Low H / L Range H/L Percent Range EWZ 2011* 35.48 63.49 22.25 41.24 185.35% -18.19% 2012 28.69 44.53 21.51 23.02 107.02% 0.36% 2013 24.77 40.35 16.67 23.68 142.05% -17.48% 1H 2014 27.50 33.66 22.58 11.08 49.07% 9.06% THE OPTIONS INSTITUTE at CBOE 18
CBOE Gold ETF Volatility Index 1H 2014 Price Action GVZ SM vs. GLD 140 30 GLD 25 120 GVZ 20 100 15 80 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 19
CBOE Gold ETF Volatility Index 1H 2014 in Context GVZ Statistics 2008* 1H 2014 Average High Low H / L Range H/L Percent Range GLD 2008* 38.67 64.53 22.69 41.84 184.40% -0.41% 2009 27.29 43.09 17.46 25.63 146.79% 24.03% 2010 20.91 30.73 16.23 14.50 89.34% 29.27% 2011 22.27 39.95 14.72 25.23 171.40% 9.57% 2012 18.14 25.36 11.97 13.39 111.86% 6.60% 2013 20.70 34.48 12.07 22.41 185.67% -28.33% 1H 2014 15.83 20.42 12.11 8.31 68.62% 10.27% THE OPTIONS INSTITUTE at CBOE 20
CBOE Crude Oil ETF Volatility Index 1H 2014 Price Action OVX SM vs. USO 40 40 USO 35 30 OVX 30 20 25 10 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 21
CBOE Crude Oil ETF Volatility Index 1H 2014 in Context OVX Statistics 2007* 2014 Average High Low H / L Range H/L Percent Range USO 2007* 30.59 41.37 24.67 16.70 67.69% 57.34% 2008 52.01 100.42 29.77 70.65 237.32% -56.31% 2009 51.49 87.67 34.95 52.72 150.84% 18.67% 2010 33.34 47.15 25.42 21.73 85.48% -0.71% 2011 39.02 61.82 26.50 35.32 133.28% -2.28% 2012 32.18 42.31 24.34 17.97 73.83% -12.44% 2013 22.46 31.14 15.20 15.94 104.87% 5.84% 2H 2014 18.49 21.70 14.50 7.20 49.66% 10.08% THE OPTIONS INSTITUTE at CBOE 22
VIX Related Exchange Traded Products 1H 2014 Performance Selected ETP Performance Long VIX ETPs Ticker 12/31/2013 6/30/2014 Change % Change ipath S&P 500 VIX ST Futures ETN VXX 45.39 28.60-16.79-36.99% ipath S&P 500 VIX MT Futures ETN VXZ 15.72 12.64-3.08-19.59% VelocityShares Daily 2x VIX ST ETN TVIX 7.50 2.98-4.52-60.27% ProShares VIX Short-Term Futures ETF VIXY 28.53 19.03-9.50-33.30% VelocityShares Long VIX ST ETN VIIX 57.63 38.63-19.00-32.97% ProShares Ultra VIX Short Term Fut ETF UVXY 63.04 26.62-36.42-57.77% Short VIX ETPs Velocity Shares Daily Inverse VIX ST ETN XIV 34.38 44.98 10.60 30.83% ProShares Short VIX Short Term Fut ETF SVXY 67.47 88.27 20.80 30.83% Low Volatility Funds ishares MSCO Emerging Mkt Min Vol Index EEMV 58.26 60.07 1.81 3.11% ishares MSCI USA Min Volatility USMV 35.50 37.22 1.72 4.85% PowerShares S&P 500 Low Volatility Portfolio SPLV 33.16 35.59 2.43 7.33% Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 23
VIX Related Exchange Traded Products 1H 2014 Performance in Context Selected ETP Performance Long VIX ETPs Ticker 2013 Performance 1H 2014 Performance ipath S&P 500 VIX ST Futures ETN VXX -64.33% -36.99% ipath S&P 500 VIX MT Futures ETN VXZ -43.76% -19.59% VelocityShares Daily 2x VIX ST ETN TVIX -91.97% -60.27% ProShares VIX Short-Term Futures ETF VIXY -66.46% -33.30% VelocityShares Log VIX ST ETN VIIX -66.51% -32.97% ProShares Ultra VIX Short Term Fut ETF UVXY -91.97% -57.77% Short VIX ETPs Velocity Shares Daily Inverse VIX ST ETN XIV 107.23% 30.83% ProShares Short VIX Short Term Fut ETF SVXY 106.17% 30.83% Low Volatility Funds ishares MSCO Emerging Mkt Min Vol Index EEMV -1.29% 3.11% ishares MSCI USA Min Volatility USMV 25.09% 4.85% PowerShares S&P 500 Low Volatility Portfolio SPLV 23.13% 7.33% Data Sources: CBOE & Bloomberg THE OPTIONS INSTITUTE at CBOE 24
Trading Examples Bullish Spread March 7, 2014 VIX @ 14.11 VXH4 @ 15.50 Buy 1 Mar 17 Call @ 0.42 Sell 1 Mar 20 Call @ 0.10 Net Cost = 0.32 THE OPTIONS INSTITUTE at CBOE 25
Trading Examples Bullish Spread Payoff Diagram 4.00 3.00 2.00 1.00 VIX @ 14.11 VXH4 @ 15.50 0.00 14.00 17.00 20.00 23.00-1.00 THE OPTIONS INSTITUTE at CBOE 26
Trading Examples Bearish Spread July 3, 2014 VIX @ 10.32 VXN4 @ 11.80 Buy 1 VIX Jul 11.00 Put @ 0.18 Sell 1 VIX Jul 10.50 Put @ 0.05 Net Cost = 0.13 THE OPTIONS INSTITUTE at CBOE 27
Trading Examples Bearish Spread Payoff Diagram 1.00 0.75 0.50 VIX @ 10.32 VXN4 @ 11.80 0.25 0.00 8.50 9.00 9.50 10.00 10.50 11.00 11.50 12.00 12.50 13.00-0.25-0.50 THE OPTIONS INSTITUTE at CBOE 28
Trading Examples Neutral Spread May 21, 2014 VIX @ 11.91 VXM4 @ 14.10 Sell 1 VIX Jun 14 Put @ 0.87 Sell 1 VIX Jun 14 Call @ 0.97 Buy 1 VIX Jun 21 Call @ 0.25 Net Credit = 1.59 THE OPTIONS INSTITUTE at CBOE 29
Trading Examples Neutral Spread Payoff Diagram 5.00 2.50 VIX @ 11.91 VXM4 @ 14.10 0.00 14.00 17.50 21.00 24.50-2.50-5.00-7.50 THE OPTIONS INSTITUTE at CBOE 30
VIX Calendar Spreads Quote Example July / August Futures Quotes Bid Size Bid Ask Ask Size July VIX 358 13.20 13.25 1786 August VIX 1400 14.10 14.15 219 Market Order Sell 1 July VIX @ 13.20 Buy 1 August VIX @ 14.15 However, there is an alternative. THE OPTIONS INSTITUTE at CBOE 31
VIX Calendar Spreads Quote Example July / August Futures Quotes Bid Size Bid Ask Ask Size July VIX 358 13.20 13.25 1786 August VIX 1400 14.10 14.15 219 Aug / Jul VIX 60 0.92 0.93 60 Spread Orders Sell August / Buy July @ 0.92 (0.85) Sell July / Buy August @ 0.93 (0.95) Check with your brokerage firm regarding spread quotes THE OPTIONS INSTITUTE at CBOE 32
Summary Volatility in 2014 2014 has been pretty quiet The CBOE Russell 2000 Volatility index has maintained a premium relative to VIX and VXN this year Oil and the Brazilian market are the only two volatility indexes to show elevated levels this year Long exposure has come mostly through low cost spreads www.cboe.com/volatility rhoads@cboe.com THE OPTIONS INSTITUTE at CBOE 33