The 32nd Annual RMC and Key Indexes – VVIX, SKEW, VIX, SPX, OVX, and WPUT – By Matt Moran

On February 29 – March 2 I attended the 32nd Annual CBOE Risk Management Conference  at the Hyatt Regency in Bonita Springs, Florida, and I was pleased to view several presentations by excellent speakers, including keynotes by Leo de Bever, PhD, Former CEO, Alberta Investment Management Corp., and by Jim VandeHei, Co-Founder, President, and CEO of POLITICO.
In preparing for RMC, I looked at a number of indexes and charts as shown below.

1. VVIX INDEX AND VOLATILITY OF VOLATILITY

An RMC session on March 1st discussed “Volatility of Volatility and Other Facets of VIX Options.” The two charts below show the relationship since January 2008 between the CBOE Volatility of Volatility Index (VVIX) (which had a daily closing high of 168.75 in 2015) and volume on the options on the CBOE Volatility Index® (VIX®).

Tw-01-VVIX Indx & VIX opt adv
Here are the average daily closing values for the CBOE Volatility of Volatility Index (VVIX) in three key years –

  • 81.9  Avg. daily close in 2008
  • 79.8  Avg. daily close in 2009
  • 94.8  Avg. daily close in 2015 www.cboe.com/VVIX

A volatility investor could ask this question – how might the levels of the VVIX Index impact the volume and open interest for VIX call and put options?

2. CBOE SKEW INDEX AND SPX OPTIONS VOLUME

The next two charts show the relationship between the CBOE SKEW Index (SKEW) and SPX options volume since January 2008.

Tw-02-SKEW Indx & SPX volume

Historical data for the SKEW Index go back to 1990; here are the average daily closing levels for the SKEW Index in select recent years —

  • 113.7 Avg. daily close in 2008
  • 118.1  Avg. daily close in 2009
  • 122.4  Avg. daily close in 2013
  • 129.8  Avg. daily close in 2014 (the highest-ever average for a calendar year)
  • 127.5  Avg. daily close in 2015

It is interesting to note that in 2014 the VIX Index averaged 14.2 (and some people asked if the VIX was low relative to worldwide anxiety), but the SKEW Index averaged 129.8. www.cboe.com/SKEW.

3. VIX INDEX AND VIX FUTURES VOLUME

The next two charts show the relationship between the VIX Index and VIX futures volume since January 2008.

Tw-03-VIX indx & VIX fut volume

While the long-term average daily closing value for the CBOE Volatility Index® (VIX®) since 1990 is around 19.8, here are the average daily closing values for VIX in select recent years —

  • 32.7  Avg. daily close in 2008 (the highest ever average value for a calendar year)
  • 31.5  Avg. daily close in 2009
  • 14.2  Avg. daily close in 2013 and in 2014
  • 16.7  Avg. daily close in 2015

4. VOLATILITY FOR OIL AND EMERGING MARKETS

The next two charts show the relationship between the OVX and VXEEM volatility indexes.

Tw-04-OVX VXEEM

Here are the average daily closing values for the CBOE Crude Oil ETF Volatility Index (OVX) in select recent years –

  • 52.0 Avg. daily close in 2008
  • 22.5 Avg. daily close in 2013
  • 23.1 Avg. daily close in 2014
  • 45.0 Avg. daily close in 2015

With the plunge in crude oil prices over the past year, the OVX Index has risen substantially.

5. TAIL RISK HEDGING

An RMC session featuring speakers from the University of Chicago, Office of Investments, and from UBS Securities, discussed “Tail hedging within an institutional portfolio framework.” In the past 16 years the S&P 500 Index had two very significant drawdowns.

Tw-05-SPX Index

6. HIGHER GROSS PREMIUMS FOR WPUT INDEX THAT WRITES SPX WEEKLYS OPTIONS

A new paper is authored by a Professor of Finance at the University of Illinois at Chicago — Oleg Bondarenko. An Analysis of Index Option Writing with Monthly and Weekly Rollover. (2016). From 2006 to 2015 (CBOE introduced Weeklys options in 2005), the average annual gross premium collected was 24.1 percent for the PUT Index and 39.3 percent for the WPUT Index, the study found. While a one-time premium collected by the weekly WPUT Index usually was smaller than a one-time premium collected by the monthly PUT Index, the WPUT Index had higher aggregate annual premiums because premiums were collected 52 times, rather than 12 times, per year, and there is greater time decay for options as they approach expiration.

Tw-07-Premiums by Oleg
7. MORE INFORMATION ON INDEXES

For more information on 30 volatility indexes and 27 benchmark indexes, please visit www.cboe.com/volatility and www.cboe.com/benchmarks.

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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