Options on Ten Select Sector Indices To Launch

On September 12 CBOE Holdings, Inc. announced plans to expand its suite of product offerings tied to S&P Dow Jones Indices with the planned launch of options on the 10 S&P Select Sector Indices that comprise the S&P 500 Index, a key benchmark of the U.S. equities market.

  • Options will be available on 10 sectors that comprise the S&P 500, pending regulatory approval.
  • The new options are expected to hold particular market appeal for European investors interested in targeted exposure within key U.S. equity benchmarks.
  • Further expands CBOE’s successful suite of products tied to S&P Dow Jones Indices, with trading and settlement features similar to CBOE’s S&P 500 options (SPX).

CHART 1 – WEIGHTINGS FOR S&P SELECT SECTOR INDEXES

S1 Sectors weights pie chart Options on Ten Select Sector Indices To Launch at vixtrade.com 

CBOE Holdings President and Chief Operating Officer Chris Concannon delivered remarks on sectors to attendees of the 6th annual CBOE Risk Management Conference (RMC) Europe, currently taking place near London. “We are excited that we will be able to provide exposure to these key U.S. sector indices for European customers who have been keen to incorporate U.S. sector investing strategies into their portfolios, but have not had access to an efficient trading vehicle to realize this strategy,” Mr. Concannon said.

CHART 2 – TICKERS, NOTIONAL VALUE, HISTORIC VOLATILITY

The table provides index ticker symbol, options trading symbol, approximate notional value covered by index options with a $100 multiplier on September 1, 2017 (if they were available on that date), and the average 30-trading day historic volatility over 5 years for each of the 10 indexes. In addition, Chart 5 below shows how historic volatility had changed since 1998 for the Tech and Energy sectors.

S2 Tickers Notional Hist Vola Options on Ten Select Sector Indices To Launch at vixtrade.com

CHART 3 – PRICES SINCE MID-1998 FOR FIVE SELECT SECTOR INDEXES

 Nine of the ten S&P Select Sector indices have a price of 250 on June 30, 1998, while the S&P Real Estate Select Sector Index (IXRE, SIXRE) has a shorter price history and has a price of 100 on December 30, 2011. To facilitate easier comparison of the nine indexes with price history back to 1998, I created Chart 3 and Chart 4 below. In Chart 3, the (Consumer Discretionary) IXY Index rose 261% while the (Financial) IXM Index rose only 21%.

 S3 Sectors Five Lines 1 Options on Ten Select Sector Indices To Launch at vixtrade.com

 CHART 4 – PRICES SINCE MID-1998 FOR FIVE SELECT SECTOR INDEXES

In Chart 4 the IXV (Health Care) Index rose 226%, while the IXU (Utilities) Index rose 121%.

S4 Sectors Four Lines Options on Ten Select Sector Indices To Launch at vixtrade.com

CHART 5 – HISTORIC VOLATILITY FOR ENERGY AND TECH SECTORS SINCE 1998

The table in Chart 2 above presents the historic volatilities for all ten S&P Select Sector indices.

Chart 5 below shows the historic volatility since 1998 for the IXE (Energy) and IXT (Technology) indices. The volatility for IXT generally was higher in 2000 to 2002, while the volatility for IXE often was higher in recent years.

S5 Hist vola 2 indexes Options on Ten Select Sector Indices To Launch at vixtrade.com

CHART 6 – CORRELATIONS AMONG 12 INDICES OVER FIVE YEARS

Chart 6 below shows that the S&P Consumer Discretionary Select Sector Index (IXY, SIXY) and the S&P Industrials Select Sector Index (IXI, SIXI) both had high correlations of 0.90 versus the S&P 500 Index, while lower correlations versus the S&P 500 Index were shown for both the S&P Real Estate Select Sector Index (IXRE, SIXRE) (0.46) and for the S&P Utilities Select Sector Index (IXU, SIXU) (0.21).

S6 Sectors Correlations Table Options on Ten Select Sector Indices To Launch at vixtrade.com

EUROPEAN INVESTORS AND UCITS

CBOE Select Sector Index options are designed to potentially be problem-solvers for European asset managers who want exposure to these U.S. index sectors, but cannot hold physical delivery exchange-traded product (ETP) options in their funds because of EU regulations around UCITS (Undertakings for the Collective Investment of Transferable Securities). The options on the Select Sector Indexes are designed to provide simple, straightforward market access to these key U.S. equity sectors for European investors.

MORE INFORMATION

For more information on the planned options on S&P Select Sector Indices, including links to more than 100 price charts, and a Fact Sheet with key options specifications, please visit www.cboe.com/Sectors.

 

 

 

 Options on Ten Select Sector Indices To Launch at vixtrade.com >

Record Days for VIX Futures and Options Volume and Open Interest This Month

Despite the fact that the average daily closing value of the CBOE Volatility Index® (VIX®) is about 11.5 so far this year, VIX futures and options both had record days for volume and for open interest this month.

OPEN INTEREST RECORDS. VIX futures hit a new record for open interest with more than 673,000 contracts on August 7, and VIX options reached a new record for open interest with 14,783,380 contracts open on August 15. V1 Open Int VIX Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

VOLUME RECORDS. August 10 was an all-time record volume day for both VIX futures (volume of 942,109 contacts) and for VIX options (volume of 2,538,121 contracts). V2 VIX fut opt volume Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

 IS THE VIX INDEX “TOO LOW”? SPX HISTORIC VOLATILITY HAS BEEN EVEN LOWER; THERE STILL IS A VOLATILITY RISK PREMIUM

This year many financial professionals have raised the issue as to whether the VIX level appears to be “low” compared to the levels of worldwide financial insecurity.  At the 70th CFA Institute Annual Conference in May 2017, Richard Thaler of the University of Chicago opined that the “low” level of the VIX Index was one of the biggest financial mysteries of our time. As shown in the chart below, in 2017 the averages of the daily levels were 11.5 for the VIX Index and only 7.1 for the 30-trading-day historic volatility of the S&P 500 Index. Compared to the SPX historic volatility, the VIX Index has not necessarily been “low” this year.

V3 Vol Risk Prem 1 Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

The fact that the VIX Index has been higher than SPX historic and realized volatility means that there has been a volatility risk premium. Some professional money managers who consistently sell index options like to see the volatility risk premium. Benchmark indexes that take advantage of the volatility risk premium (such as the CBOE S&P 500 PutWrite Index (PUT) and the CBOE S&P 500 30-Delta BuyWrite Index (BXMD)) generated relatively strong risk-adjusted returns over three decades, according to a research paper by Wilshire – Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis (2016).

HIGH DEMAND FOR DISASTER PROTECTION – CBOE SKEW INDEX AND VOLATILITY SKEW CHART

Demand for disaster protection using index options has been high this year. Note in the volatility skew chart below that the implied volatility was highest for the out-of-the-money VIX calls (at 120% moneyness) and the out-of-the money SPX puts (at 80% moneyness)

V4 Volatility skew Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com

On August 18 I posted a blog on the CBOE SKEW Index that noted “The long-term daily average for the SKEW Index (since January 1990) is 118.8, but the daily average for the SKEW Index in 2017 (through August 17) is a much higher 134.5. …”

An August 24 story in the Financial Times noted that –

“Investors seek more protection against risk of a Wall St plunge A gauge that tracks hedging against a fall in US stocks is near a record level …       The CBOE SKEW index, which is meant to reflect concern about “tail risk”, or events roiling the markets, rose to 148.62 last week, its third highest reading … “

MORE INFORMATION ON VIX FUTURES AND OPTIONS

To learn more about ways in which the powerful VIX futures and options can be used for portfolio management, please visit www.cboe.com/VIX.

 

 

 Record Days for VIX Futures and Options Volume and Open Interest This Month at vixtrade.com >