Investors can gain valuable insights into the relative costs of various options positions by comparing the values of key volatility indexes. On Thursday the closing values for three volatility indexes were —
33.05 OVX – CBOE Crude Oil Volatility Index www.cboe.com/OVX
17.07 VXV – CBOE S&P 500 3-Month Volatility Index www.cboe.com/VXV
14.84 VIX® – CBOE Volatility Index® www.cboe.com/VIX
In a September 27th story, Bloomberg reporters Nikolaj Gammeltoft and Cecile Vannucci wrote —
“Oil Puts at 16-Month High Versus S&P 500 on Slowdown. Costs to protect against losses in oil jumped to a 16-month high compared with U.S. stocks, a sign the slowing economic recovery may be a greater risk to energy demand than to share prices. The Chicago Board Options Exchange Crude Oil Volatility Index, tracking 30-day options on the United States Oil Fund LP, climbed 2.3 percent to 35.13 yesterday and reached a two-month high of 36.58 on Sept. 19. The ratio between the oil gauge and the CBOE Volatility Index for equities rose to its highest since May 2011 on Sept. 19. Traders are paying a premium to protect against losses in oil futures, which have tumbled more than 9 percent since Sept. 14 compared with a 2.2 percent retreat in the Standard & Poor’s 500 Index. … The oil volatility index has climbed 44 percent since its record low on April 27. In the same period, the volatility gauge for U.S. stock options, known as the VIX, gained 3 percent. …”
COMPARING 3 INDEXES — OVX, VXV and VIX
Here are the daily closing OVX/VIX ratios on 3 select dates —
The chart below shows 14 months of price movements for three indexes – OVX, VXV and VIX. The CBOE S&P 500 3-Month Volatility Index (VXV) is designed to be a constant measure of 3-month implied volatility of the S&P 500® (SPX) Index options. The VXV Index has tended to be less volatile than the CBOE Volatility Index® (VIX®), which measures one-month implied volatility. Using the VXV and VIX indexes together provides useful insight into the term structure of S&P 500 (SPX) option implied volatility. The ratio of the VXV to the VIX Index reached 1.41 on March 16, 2012, but in the past week the VXV/VIX ratio was around 1.1.
DAILY TRADING VOLUME RECORDS FOR VIX FUTURES AND OPTIONS THIS MONTH
This month all-time single-day trading volume records were set for both —
- VIX futures on September 13, as 190,081 contracts traded; and
- VIX options on September 11, as a reported 1,221,403 contracts changed hands.
The price chart above can be compared to the volume chart below as they both cover a 14-month time period.
Total volume for OVX futures is more than 8,600 contacts. www.cboe.com/OVX
LINKS TO MORE INFORMATION
- Volatility indexes www.cboe.com/volatility
- CBOE Volatility Index® (VIX®) (with put-call ratios, CFE, charts, bibliography, etc.) www.cboe.com/VIX
- Papers on Income Enhancement and Tail Risk Management www.cboe.com/benchmarks