Dozens of worldwide volatility indexes can serve as valuable tools for investors who wish to gauge intraday and long-term sentiment changes related to a variety of asset classes. In addition, investors take long and short positions in futures and options on key volatility indexes.
The tables and seven graphs below provide an overview of the 2016 performance of 20 volatility indexes and the CBOE SKEW Index. Key points regarding volatility indexes in 2016 include the following:
- There were some big moves in volatility indexes around the June 24 Brexit vote and the November 8 U.S. election.
- New all-time daily trading volume records for futures on the CBOE Volatility Index® (VIX®) during Extended Trading Hours (non-U.S. hours from 3:30 p.m. to 8:30 a.m.) were set on June 24 (235,141 contracts) and again on November 9 (263,663 contracts).
- The prices for VIX futures rose 55% over a 140-minute period on the night of November 8 (see Exhibit 2 below).
- The daily closing values of the CBOE/CME FX British Pound Volatility Index (BPVIX) rose from 7.72 on Jan. 8th, to 29.10 on June 14th, a rise of 277% (see Exhibit 3 below). Implied volatility on the British pound was one of the financial markets’ biggest major movers in the months leading up to the Brexit vote (see Exhibit 3 below).
- While the average daily closing value of the VIX Index in 2016 was 15.8 (below its long-term average of 19.7 since 1990), the average daily closing value of the CBOE SKEW Index was 127.6 (the second highest level among all its 27 years since 1990). These numbers could indicate that demand for hedging with deeper out-of-the-money S&P 500® (SPX) protective puts options could have been stronger in 2016.
VIX INDEX AND THE EXPECTED VOLATILITY OF THE S&P 500 INDEX
The CBOE Volatility Index® (VIX® Index) is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices.
In 2016 the daily closing values of the VIX ranged from 11.27 to 28.14, and the VIX rose a record ninth straight trading day on November 4 (prior to the U.S. election).
VIX FUTURES ON NOVEMBER 8 AND 9
On the November 8 Tuesday election night in the United States, the reported prices for the November futures on the VIX Index rose from a low of 15.10 at 8:07 p.m. E.T., to a high of 23.46 at 10:27 p.m. E.T., a rise of 55% over a 140-minute period (source: Bloomberg). Reported volume for VIX futures during non-U.S. trading hours was an all-time record of 263,663 contracts during the November 9 trading session (which technically began at 3:30 p.m. C.T. the day before. www.cboe.com/ETH). On Wednesday morning, the price of the VIX Nov. futures fell below 16, as a story at cbsnews.com noted that “Conciliatory comments from U.S. President-elect Donald Trump in the aftermath of his stunning victory over Hillary Clinton helped global stock markets erase a large chunk of their earlier losses Wednesday.”
CURRENCY AND INTEREST RATE VOLATILITY
While average daily close for the BPVIX Index was 12.0 in 2016, the BPVIX Index soared to 29.1 on June 14, prior to the Brexit vote. Futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (TYVIX) are available, and some observers believe that interest rate volatility could soar in 2017.
COMMODITY VOLATILITY INDEXES IN 2016
In 2016 the CBOE Crude Oil ETF Volatility Index (OVX) hit a daily closing value peak of 78.97 on February 12, and it closed the year at 30.83.
WORLDWIDE VOLATILITY INDEXES IN 2016
In 2016 the peak daily closing values were 37.99 for the HIS Volatility Index (Hong Kong) and 39.90 for the EuroSTOXX 50 Volatility Index.
VOLATILITY ON SINGLE STOCKS
In 2016 the average daily closing values were 30.9 for the VXAZN Index, 23.6 for the VXGOG Index, and 25.3 for the VXAPL Index. Exhibit 6 shows that the VXAZN Index had some big moves, and that the earnings announcement dates for Amazon in 2016 were on January 28, April 28, July 28, and October 27.
SKEW, VVIX AND VIX INDEXES
In 2016 the highest daily closing values were 153.66 for the CBOE SKEW Index on June 28, and 125.13 for the CBOE VIX of VIX Index (VVIX) on June 24. Both indexes hit relatively high levels around the June 24 Brexit vote and the November 8 U.S. election, as there was uncertainty as to how these events might impact equity markets.
The volatility indexes above are designed to primarily serve as gauges for market expectations of future volatility, and are not meant to show investable performance.
For those investors who would like to explore the possibility of investing in VIX futures and options, there are certain benchmark indexes that are designed to show the potential for investable performance for certain strategies that use VIX futures or VIX options. Here are the 2016 changes for a sampling of the many benchmarks that use VIX futures or VIX options –
- 28.8% S&P 500 VIX Futures Term-Structure Index TR
- 25.2% VPD – CBOE VIX Premium Strategy Index
- 23.0% VPN – CBOE Capped VIX Premium Strategy Index
- 8.3% S&P 500 Dynamic VIX Futures Index TR
- 1.1% VSTG – CBOE VIX Strangle Index
- 1.0% VXTH – CBOE VIX Tail Hedge Index
- 0.1% S&P 500 Dynamic VEQTOR Index TR
- -28.3% S&P 500 VIX Futures Tail Risk Index TR – Short Term
To learn more about the CBOE benchmark indexes, please visit www.cboe.com./benchmarks, and read closely the related disclosures and disclaimers. Past performance is not predictive of future returns.
MORE INFORMATION ON VOLATILITY INDEXES
Please visit www.cboe.com/volatility for links to information on more than 25 volatility indexes, strategies and a bibliography.