Feb. 5, 2018 – Today was the second trading day in a row on which there was very strong volume on Cboe Global Markets’ options exchanges and futures exchange. Today there were record-breaking one-day percentage moves for both the Cboe Short-Term Volatility Index (VXST), which rose 214.6% to close at 59.34, and for the popular Cboe Volatility Index® (VIX®) which rose 20.01 points (or 115.6%) to close at 37.32.
PRICE CHARTS FOR 2018
The first price chart below shows that the levels for the Cboe Crude Oil Volatility Index (OVX) were higher than those for the VXST and VIX indexes in January, but today the the VXST and VIX rose much higher than the OVX Index – in general, implied volatility now is higher for the S&P 500 than it is for the USO Oil ETF.
Today the S&P 500 Index fell 4.4% and the Cboe VIX of VIX Index (VVIX) rose 41.3%; the implied volatility for VIX options has risen (see also the volatility skew charts below).
VIX FUTURES PRICES AND OPEN INTEREST FOR 14 EXPIRATIONS IN THE NEXT NINE MONTHS
While the VIX Index closed at 37.32 today, many volatility traders say that the prices they focus on are the VIX futures prices. The table below shows prices (ranging from 19.35 to 35.3) and open interest for 14 expirations for VIX futures. The prices below can provide some clues as to where the financial markets think that the VIX wil be at in future months. Today the VIX Index is in backwardation (rather than contango).
VIX AND SPX OPTIONS – HIGHER IMPLIED VOLATILITY
The next two charts show how the volatility skew (and Bloomberg’s estimates for 30-day implied volatility) changed from January 19 to February 5.
In the first chart below, Bloomberg’s estimates for 30-day implied volatility for VIX options on January 19 ranged from 68.9 to 115.5, and on February 5 the range was much higher – from 146.8 to 353.1.
In the next chart, the estimates for implied volatility for at-the-money SPX options (at 100% moneyness) were 8.5 on January 19 and 30.9 on February 5. SPX implied volatility at 80% and 90% moneyness generally has been much higher than at 100% moneyness – this reflects the fact that there often is big demand for out-of-the-money SPX puts to be used for portfolio protection.
WHITE PAPERS ON PORTFOLIO RISK MANAGEMENT
To learn more about portfolio management tools that can be used to manage risk in portfolios, please click on the links to white papers below (many of which are available at www.cboe.com/benchmarks).
- Aon Hewitt. Harvesting the Equity Insurance Risk Premium: Know Your Options (December 2014)
- Asset Consulting Group. Key Tools for Hedging and Tail Risk Management (February 2012)
- Bondarenko, Oleg. An Analysis of Index Option Writing with Monthly and Weekly Rollover. (2016)
- Callan Associates. “An Historical Evaluation of the Cboe S&P 500 BuyWrite Index Strategy.” (October 2006)
- Cambridge Associates, LLC. Highlights from the Benefits of Selling Volatility (2011)
- Hewitt EnnisKnupp. “The Cboe S&P 500 BuyWrite Index (BXM) – A Review of Performance” (2012)
- Ibbotson Associates. “Highlights from Case Study on BXM Buy-Write Options Strategy.” (2004)
- Parametric Portfolio Associates. “Volatility Risk Premium and Financial Distress” (August 2016)
- Wilshire. “Three Decades of Options-Based Benchmark Indices with Premium Selling or Buying: A Performance Analysis” (2016)
- University of Massachusetts. “VIX Futures and Options-A Case Study of Portfolio Diversification During the 2008 Financial Crisis” (June 2009).