Russell Rhoads, PhD, CFA from ListDer Research <russellrhoads@substack.com> Unsubscribe 3:36 PM (36 minutes ago) S&P 500 At All Time High, VIX Higher As Well Last Week Saturday Review For January 20, 2024 RUSSELL RHOADS, PHD, CFA JAN 20 As the title states, the S&P 500 (SPX) closed at a new all-time high on Friday, however VIX was lower last week. We apologize as the headline could be considered click bait, but VIX was also higher last week. This was a function of coming off a three-day weekend, where VIX usually experiences a headwind going into the long weekend and a tailwind coming out. The Russell 2000 (RUT) was slightly lower last week, mirroring most of 2023. There was a dramatic catch up in performance for RUT in December. So far in 2024, RUT is down over 4%, while SPX is up about 1.5%. A couple more weeks of this and we will be looking to repeat a long RUT, short SPX trade. January VIX futures expired last week, so February takes over as the front month. VIX was higher and February was unchanged week over week. The balance of the curve is mixed. The mixed performance of VIX futures shows up in the table below with the long ETPs holding the front two month futures contracts doing well and the longer focused ETPs down slightly. All the inverse funds were lower. The VSTOXX term structure mirrored VIX last week, but that was in response to the Euro Stoxx 50 (SX5E) dropping slightly. The new front month February future rose with farther dated futures dropping. The excess volatility last week was mostly to the upside with the at-the-money (ATM) straddles getting run over both Thursday and Friday last week. The straddle pricing as a percentage of the market is of interest at around 0.50% each day. The average in 2023 was 0.65%, if SPX continues to put up big days (in either direction), that figure should start to rise. Last week was standard option expiration week (3rd Friday) so NDX options expired on the open Friday. We have three days to look at and the first two days the ATM straddle overpriced the move and Thursday, despite a slightly more expensive premium, was dramatically underpriced. Russell 2000 daily expirations are now available, but like NDX there is no PM settled option on the 3rd Friday, so we have three days to look at from last week. In an interesting twist, Tuesday was the worst day for short ATM RUT straddles. There was no holiday in Europe last week, so we have five days of ATM straddle pricing to check out. Ties are more of a thing in the most popular European sport; therefore, we can say SX5E straddle sellers went 2-2-1 last week with Monday being the tie. Finally, DAX option sellers had a good week last week with the profits from the three winners outpacing the two losing days. We had two firms in our universe report last week. Morgan Stanley (MS) dropped a bit more than the average move and Charles Schwab (SCHW) was slightly lower but fell within the average price change off earnings for the last twelve reports. Last Week’s Trades Of The Day Each day we try to find a trade of interest on the tape. Some or very short term (SCHW / SVIX last week) and some a longer term (VIX / Bitcoin last week). Below is a summary of those trades with some comments. In the future, whjen appropriate we will refer back to the performance Tuesday Couple Trades Of Interest In SCHW Before Tomorrow’s Earnings Announcement We came across a call buyer and put buyer in front of Charles Schwab (SCHW) reported Wednesday before the open. The stock was down early Wednesday and it appears the put buyer managed to exit a majority of the position with a profit. Wednesdsay SVIX Put Seller Getting Paid To Get Short Volatility Seller of SVIX put that expired out of the money on Friday. If SVIX closed under 37.50 on Friday the put seller would have owned SVIX at an effective price of 36.20. Thursday Interesting Mix Of VIX Options For Long Vol Exposure VIX option trade selling a buy and buying a 1x2 call spread that benefits if VIX is in the low 20’s. Friday Bitcoin Option Spread Targeting Sub $39,000 By Late Feb Long put, short call using Bitcoin futures expiring in late February is likely a hedge. Recall, when Bitcoin futures were launched in late 2017 the price dropped around 30% in a fairly short period of time. This may be a hedge based on a repeat of that pattern.