ASX Launching A-VIX Futures Trading Next Week

Back in early June of this year I had the honor and privilege of visiting the Australian Securities Exchange (ASX) and discussing volatility indexes with a wide variety of market participants.  I met with traders and investors in both Sydney and Melbourne over the course of a week.  That trip helped lay the ground for introduction of futures trading on the S&P/ASX 200 VIX (A-VIX) Index.  The countdown to launching volatility trading at the ASX is underway and next Monday October 21st will be the first day of trading for A-VIX futures.

A-VIX uses the same calculation methodology as the well-known CBOE Volatility Index (VIX).   A-VIX also has a historical relationship with the underlying S&P/ASX 200 that is very similar to the relationship between the S&P 500 and VIX.  This first chart shows the price action of S&P/ASX 200 and A-VIX from January 2013 through the middle of October 2013.

A-VIX Chart

That inverse relationship that volatility traders are keenly aware of with respect to the S&P 500 versus VIX shows up in a similar fashion when considering the Australian version of the underlying and volatility markets.  There is data going back to the first day of 2008 for A-VIX so I did a little analysis and put together the table below that breaks out A-VIX activity and the correlation between A-VIX and the S&P/ASX 200 by year from 2008 through year to date 2013.

A-VIX Correl

 

Note the correlation is consistently negative between the two indexes.  This is common for just about any equity index market relative to the corresponding volatility index.  A-VIX futures trading will allow all levels of investors the ability to gain exposure to implied volatility as priced in by options on the S&P/ASX 200 index.  A little more on the A-VIX can be found at the link below –

http://www.asx.com.au/education/investor-update-newsletter/201310-an-index-that-looks-forward-not-back.htm

I for one am looking forward to the launch of A-VIX futures trading and tracking the progress of this new method to gain exposure to market volatility.

 

No Comments
Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

Tags