Back in May the CBOE/CBOE 10-year U.S. Treasury Note Volatility Index (VXTYN – 6.11) was introduced to the marketplace.  This index is an indication of expected volatility of 10-year Treasury Note Futures.  Although VXTYN was introduced in May there is historical data going back to January 10, 2013 available on the CBOE’s website.  Using this data we can see what VXTYN did going into and after the three Fed announcements from this year.  Notice a little bit of elevated activity and then a slight sell off as indicated by the three green circles in the chart below.  Now note the red circle (that you can’t miss).  VXTYN is elevated, just off the highest levels this year.  Maybe the statement doesn’t change, but the anticipation (or uncertainty) going into this announcement is definitely different this time.

June 14, 2013 — Volatility indexes that have risen more than 17% so far this month include the VHSI – HSI Volatility Index (Hong Kong), the VCAC – CAC-40 Volatility Index (France), and the VXEWZ – CBOE Brazil ETF Volatility Index. On the other hand, the OVX – CBOE Crude Oil Volatility Index has fallen 13.1% so far this month. 

Below is a table featuring volatility indexes that are either up or down more than 10% so far in June.  An analysis of the closing values and changes for these indexes has the potential to give some valuable clues as to changes in investor sentiment for various investments worldwide and related listed options.

VCAC INDEX — HI-LOW-CLOSE

The month-end closing value for the VCAC Index in May was 16.08, but throughout most of this month the VCAC Index has bounced around between 18 and 21. Implied volatility for the French stock index is up this month.

VOLATILITY OF VOLATILITY

The CBOE VIX of VIX Index experienced rose 22.7% in two days this past week – its closing values were 82.94 on June 10th and 101.77 on June 12^th. www.cboe.com/VVIX.  Implied volatility levels related to the popular VIX options recently experienced some big changes.

To learn more about volatility indexes and how they can be helpful to investors, please visit www.cboe.com/volatility.

May 23, 2013 — Today a press release announced that CBOE began disseminating values for a new volatility benchmark index using futures options data on CME Group’s 10-year U.S. Treasury note contract.  The CBOE/CBOT 10-year U.S. Treasury Note Volatility IndexSM (ticker symbol VXTNYSM) is the first volatility index based on U.S. government debt to be calculated and disseminated by CBOE.   www.cboe.com/VXTYN

CBOE and CBOE Futures Exchange (CFE) plan to offer trading on the 10-year Treasury Volatility Index in the future.  The VXTYN Index has the potential to become a popular gauge if there is a future rise in both interest rates and interest rate volatility.  

CBOE disseminates more than 20 volatility indexes (see www.cboe.com/volatility), and in recent years I received requests for a gauge of interest rate volatility.

VXTYN Index Price Chart

Here is a VXTYN daily high-low-close price chart with data for early 2013.

Other Long-term Charts

As noted above, the new VXTYN Index is designed to reflect expected volatility of CME Group’s 10-year U.S. Treasury note contract.

Below are charts from Bloomberg that show (1) estimates of yields for 10-year U.S. Treasury notes since 1962, and (2) historic volatility of Citigroup Treasury indexes since 1995.  The yield on 10-year Treasuries reached 15.8% in September 1981.The historic volatility for the Citigroup 10-year Treasury Index has risen above 20 in 1995.

These two charts are presented for general information purposes only, and investors are encouraged to read the contract specifications for the CME Group’s 10-year U.S. Treasury note contracts to learn more about the actual Treasury instruments that are used by CME Group.  

Disclosures  – CBOE Volatility Index^®, VIX^®, CBOE^®, and Chicago Board Options Exchange^® are registered trademarks and CBOE/CBOT 10-year U.S. Treasury Note Volatility Index^SM and VXTYN^SM are service marks of Chicago Board Options Exchange, Incorporated (CBOE). The methodology of the CBOE Volatility Index is owned by CBOE and may be covered by one or more patents or pending patent applications. All other trademarks and service marks are the property of their respective owners.

May 17, 2013 — A report on Bloomberg news on Friday noted that –

 “Consumer confidence rose in May to the highest level in almost six years as an advancing stock market and cheaper gas prices helped lift Americans’ outlook on the economy.   The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 83.7 in May, the highest since July 2007, from 76.4 the prior month, a report today showed.  …  Americans are enjoying lower prices at the pump, a rally in the stock market and a recovery in home sales, which are helping alleviate the effects of higher taxes and a package of federal spending cuts, known as sequestration, that threatens to take a toll on jobs. …”

CHARTS FOR 3 INDEXES

It is interesting to compare the movements of three indexes that reflect sentiment – the Consumer Sentiment Index, S&P 500 Index and VIX Index. The SPX and VIX indexes can be key gauges of investor sentiment.

For example, in the year 2008 the VIX Index (based on SPX options) rose above 80 for the first time, while the Michigan Consumer Sentiment index fell below 60 for the first time since 1980. 

On Friday the VIX closed at 12.45, as the (preliminary) Michigan Consumer Sentiment index rose to 83.7.

OPTIONS STRATEGIES

Do the changes in the sentiment indexes impact your investment outlook?  Are you more bullish or bearish on certain sectors after hearing about today’s sentiment index values?  You can learn more about options strategies at the CBOE’s Strategies and Education websites at http://www.cboe.com/Strategies  and  http://www.cboe.com/LearnCenter   

An interesting way to look at trends in the S&P 500^® (SPX^TM) Index is to look at the dates on which it first closed above its 100-point milestones. As shown in the table below, the SPX first closed above 200 in Nov. 1985, above 500 in March 1995, above 1000 in Feb. 1998, and above 1200 in Dec. 1998.  The SPX Index subsequently topped 1300, 1400 and 1500 in the next fifteen months, and many investors at the turn of the century assumed that 100-point rises in the S&P 500 would be easy to achieve in the near future.  However, investors struggled with two bear markets over the past 13 years, as the SPX fell to a low point as it closed at a disappointing 676.53 on March 9, 2009 (see the line chart below). Investors had to wait from March 22, 2000 until this past Friday for the SPX to top another 100-point milestone as it closed at 1614.42 on May 3, 2013.

 PORTFOLIO MANAGEMENT TOOLS

As shown in the table above, the SPX Index has experienced substantial gyrations (both up and down) over the past 15 years.  How have investors responded to these fluctuations?  Over the past decade many investors have looked beyond “traditional” investment techniques such as stock picking, and explored the possibility of using tools such as options on the S&P 500 to manage risk and add income.  Note in the charts below that average daily volume for SPX options rose from 145, 852 in 2003 to 805,821 in Jan.-April 2013, and the VIX options average daily volume rose to 614,406 in the first four months of 2013.

Please visit www.cboe.com/benchmarks to explore these benchmark indexes that use SPX options that have had lower volatility than the S&P 500 Index –

• CBOE S&P 500 BuyWrite Index (BXM) www.cboe.com/BXM

• CBOE S&P 500 95-110 Collar Index (CLL) www.cboe.com/CLL

• CBOE S&P 500 PutWrite Index (PUT) www.cboe.com/PUT

• CBOE Low Volatility Index (LOVOL)       www.cboe.com/LOVOL

More information on options strategies is at http://www.cboe.com/Strategies

On Monday April 15^th —

• the price of gold plunged 9.4% (its biggest daily drop in 30 years),
• the price of silver fell 11.3%,
• the CBOE Gold ETF Volatility Index (GVZ) rose 61.7% (a record one-day move), and
• new all-time records were established for daily trading volumes for VIX® futures, VIX options and GVZ futures. 

Many investors are asking questions such as – what are the tools to help me gain a better idea of the cost of risk management strategies for a variety of asset types in my portfolio? 

One good set of tools is CBOE’s set of 20 implied volatility indexes that are presented and updated at www.cboe.com/volatility. 

The volatility skewness of various options also is an important consideration in the evaluation of costs of options strategies. In looking at the three charts below, note that the implied volatility is higher for the 90% moneyness than for the 100% moneyness (or at-the-money) for the SLV, GLD, EEM, and SPX options; for all these options there could be great investor demand for out-of-the-money puts to hedge against disastrous downside moves.  

On the other hand, note that the note that the implied volatility is higher for the 110% moneyness than for the 100% moneyness (or at-the-money) for the VIX and VXEEM options; for these two options on stock index implied volatility, there could be great investor demand for calls on volatility indexes to help protect against disastrous downside moves in the equity portfolios.  

 To learn more about options and hedging, please visit www.cboe.com/LearnCenter

MONDAY, APRIL 15 — More one-day records were set today –

• Futures on the CBOE Volatility Index® (VIX®) set an all-time single-day volume record of an estimated 449,955 contracts.
• CBOE Gold ETF Volatility Index (GVZ) futures contract traded a single-day record of an estimated 1,488 contracts.
• GVZ – CBOE Gold Volatility Index had an all-time one-day % record up move of 61.7%    www.cboe.com/GVZ
• VXSLV – CBOE Silver ETF Volatility Index had an all-time one-day % record up move of 76.1%   www.cboe.com/VXSLV

For more information on volatility indexes and risk management, please visit www.cboe.com/volatility.

On Friday April 12^th –

• The CBOE Gold ETF Volatility Index (GVZ) rose 6.03 points to close at 21.32. The 39.4% rise was an all-time record for a one-day % rise for the GVZ Index.  CBOE Gold ETF Volatility Index (GVZ) Security Futures now are offered for trading.
• The CBOE Silver ETF Volatility Index (VXSLV) rose 7.19 points (or 30.0%) to close at 31.18.
• The CBOE Volatility Index® (VIX®) fell 0.18 points to close at 12.06.
• The SPDR Gold Trust ETF (GLD) fell 7.10 points (or 4.7%) to close at 143.95.
• The iShares Silver Trust ETF (SLV) fell 1.42 points (or 5.32%) to close at 25.28.

Viewing the price changes above, it is clear that all volatility indexes do not move in lock-step with one another.  Futures and options on both the VIX and GVZ indexes could be considered for diversification purposes.

For more information on volatility indexes and risk management, please visit www.cboe.com/volatility.

PUT/CALL RATIOS

It is interesting to note the put/call ratios for both the SPX and VIX options for the time periods covered in the above chart –

• 1.58                        SPX options 1Q’13
• 1.74                        SPX options 1Q’12
• 0.47                        VIX options 1Q’13
• 0.68                        VIX options 1Q’12

SPX options often have had put/call ratios well above 1, while the VIX options put/call ratios usually have been below 1.  While calls and puts can be used in a variety of ways by buyers and sellers, two of the simplest strategies for portfolio protection are the use of long SPX protective puts and long VIX calls.

MORE INFORMATION

To learn more about how SPX and VIX options can help you manage your portfolios, please visit the microwebsites www.cboe.com/SPX and www.cboe.com/VIX.

DAILY CLOSING VALUES IN MARCH 2013

Below is a chart with the daily closing values for 2 volatility indexes and VIX May ’13 futures.  The banking crisis in Cyprus began mid-month.

The percentage changes from March 14 through the end of March were –

• Up 38.5% for the EuroSTOXX 50 Volatility Index (VSTOXX).
• Up 12.4% for the CBOE Volatility Index (VIX).
• Down 1.0% for the VIX May ’13 futures.

To learn more about how VIX products can be used in portfolio management, please visit www.cboe.com/VIX.