Today CBOE started quoting the CBOE Short-Term Volatility Index (VXST – 11.80) on a real time basis. Real time for volatility indexes means an updated quote every 15 seconds. With the interesting market activity late in the day it was a fun first day to have VXST updating on my screen. On my quote screen I have VXST, VIX and VXV lined up together. I’m sure everyone is aware that VIX is the CBOE Volatility Index that measures 30 day implied volatility as indicated by SPX option prices. CBOE also disseminates the CBOE 3 Month Volatility Index under the ticker VXV. VXV indicates a 93-day implied volatility measure as determined by SPX option markets. The chart below shows the progress of these three volatility measures throughout the trading day today.
Today, when the S&P 500 sold off in the afternoon all three volatility indexes rose together. What I kept an eye on was the relationship between VXST and VIX. Specifically I wanted to see if VXST would rise above VIX. In the past when there is a more defined panic in the market VXST has closed at a premium to VIX. We don’t have intraday history to work with yet, but I was fixated on this relationship and noted that the SPX sell-off was short lived and VXST did not seem to signal any short term panic by moving to a premium relative to VIX.
The day finished with VIX actually rising a little more than VXST. Market watchers can read into this that with the holiday shortened week coming up there is little concern of a continued sell off in the S&P 500, who knows? However, as we get more history and more intra-day data to work with I think short term traders will find some good information in comparing VXST to VIX to get a feel for the amount of ‘short-term fear’ in the equity market.
If you have a bit more interest in this new volatility index check out – www.cboe.com/vxst