Review of Volatility in 2014 (Part 1) – High Volatility and Record Volume in October

Dec. 22, 2014 – Looking back on volatility in 2014, certainly October was a key month for U.S. stock-related volatility. Two key volatility indexes that hit their highest daily closes for the year on October 15th – the CBOE Volatility Index® (VIX®) closed at 26.25 and the CBOE Short-Term Volatility Index (VXST) closed at 31.32 that day.

RECORD VOLUME IN OCTOBER

Here are record average daily volume (A.D.V.) numbers for October – (1) the S&P 500® (SPX) options A.D.V. rose to all-time record of 1,306,801 (up 58% over the previous month), and (2) VIX options A.D.V. rose to 852,402 (up 53% over previous month).

FIVE ALIGNED CHARTS ON VOLATILITY INDEXES AND VOLUME

Below are 5 charts with the x-axes aligned so you can compare and contrast the data. Is more volatility related to more index options and VIX futures volume?

1 - 3 VIX  & Volume

4-5 - SKEW VVIX

HAS VIX BEEN HIGH OR LOW IN 2014?

So far this year, the average daily closing value for the VIX Index was 14.1, and some observers have asked if VIX has been somewhat low in light of all the worldwide geopolitical uncertainties and tensions in 2014. During the years 1990 through 2013, the average daily closing values were 20.2 for VIX and 117.2 for CBOE SKEW Index. So far in 2014, the average daily closing values were 14.1 for the VIX Index, 10.6 for the (20-trading-day) historic volatility of the S&P 500 Index, and 129.7 for the CBOE SKEW Index. So while the VIX recently has been below its long-term average, it is worth noting that the historic volatility of the SPX usually has been even lower than the VIX in 2014, and in 2014 the SKEW Index has been about 12 points above its long-term average. So in 2014 one might infer that the demand for out-of-the-money SPX puts (and disaster insurance) probably has increased relative to demand for at-the-money SPX options.

MORE INFORMATION

CBOE Holdings offers many tools to manage portfolios in times of changing volatilitiy. Another Blog on Review of Volatility in 2014 (Part 2) will be posted soon.    For more information on the indexes above, please visit www.cboe.com/volatility and www.cboe.com/SPX