Interested in Managing Global Portfolio Exposure? Explore Options on MSCI Indexes

Interest in managing global portfolio exposure has grown in recent weeks.

As shown in the price charts below, over the five-trading-day period from August 17 through August 24 –

  • Two key global stock indexes – the MSCI EAFE Index (MXEA) and MSCI Emerging Markets Index (MXEF) – both fell by more than 5%;
  • Several volatility indexes rose considerably – the CBOE Emerging Markets ETF Volatility Index (VXEEM) rose 120%; CBOE EFA ETF Volatility Index (VXEFA) rose 112%, and CBOE China ETF Volatility Index (VXFXI) jumped 92%. M - EAFE and EM stock prLL2 - M - Vola Indexes


CBOE offers new large-sized cash-settled index options on the MSCI EAFE Index (MXEA) and MSCI Emerging Markets Index (MXEF), and physically-settled options on the EFA and EEM ETFs. The new options on the MXEA and MXEF indexes have not yet garnered much trading volume, but CBOE now offers three expirations on these products (as opposed to only one expiration when the contracts launched) and I have heard some good initial interest from institutional investors because the options on the MXEA and MXEF indexes have notional values that are more than 25 times as large as the options on EFA and EEM, respectively.


At the end of July the widely followed MSCI Emerging Markets Index (MXEF) had 838 constituent stocks across 23 emerging markets countries.LL4 - M - country weights


A recent Reuters story with this headline “Options premium sellers make hay while volatility rules” noted that –

“Wild gyrations in the U.S. stock market that sent a key measure of volatility to a near seven-year-high has created a big opportunity for options premium sellers, and traders are making the most of it while it lasts.  … ‘I think the market is implying that yes, volatility may be higher going forward, but not to the same extent that we have seen in the last couple of days,’ said Christopher Jacobson, derivatives strategist at Susquehanna.  Higher volatility expectations helps boost options prices. Traders who sell that protection – in effect betting on volatility to fall – have jumped at the opportunity to sell options to collect fat premiums. … “


For investors who are interested in harvesting premiums by selling index or ETF options, options instruments that offer exposure to China and emerging markets could have appeal.  Below are the average weekly closing values for three volatility indexes over the past 4 years _

26.7                VXFXI – CBOE China ETF Volatility Index
24.2                VXEEM – CBOE Emerging Markets ETF Volatility Index
16.7                VIX® – CBOE Volatility Index®


For investors who wish to invest in MSCI-based options, the volatility skew charts can be helpful in choosing options strike prices and options strategies. For the EEM options in the second chart below, Bloomberg estimated that (a) the 30-day implied volatility for at-the-money (A-T-M) options rose from 18.4 on July 31, to 32 on August 26, and (b) the 30-day implied volatility for the EEM options at 90% moneyness (e.g., a 10% out-of-the-money put option that could be used for portfolio protection) rose from 26.5 on July 31, to 41 on August 26. The volatility skew charts below show that the out-of-the money put options can have relatively high implied volatility, and some investors now sell-cash-secured puts to take advantage of higher implied volatility.LL3 - M - Skew


To learn more about options on the MSCI EAFE Index (MXEA) and MSCI Emerging Markets Index (MXEF), please visit

To learn more about options strategies to manage your investment portfolio, please visit