The Chicago Board Options Exchange (CBOE) plans to list options on the CBOE Volatility Index, VIX, (ticker symbol VXB) for trading beginning Friday, 22 April 2005.
VIX is the widely disseminated, benchmark index commonly referred to as the market’s “fear gauge,” and for the first time, investors will now have an opportunity to trade options on this premier measure of market volatility and investor sentiment. Futures on the CBOE Volatility Index (ticker symbol VX) were first launched one year ago and are traded on the CBOE Futures Exchange (CFE).
Derived from real-time S&P 500 Index option prices, VIX is designed to reflect investors’ consensus view of expected stock market volatility over the next 30 days. Some market analysts consider VIX the “investor fear gauge” since during periods of financial stress, which are often accompanied by market declines, investors buy portfolio protection in the form of index options.
“As the home of index innovation, CBOE is proud once again to introduce an industry first to the marketplace – options on the CBOE Volatility Index, or VIX – the leading barometer of market sentiment and volatility,” commented CBOE Chairman and Chief Executive Officer, William J. Brodsky. “The launch of VIX futures through our CBOE Futures Exchange twelve months ago has been met with tremendous enthusiasm and the expansion of the VIX brand into options is a natural progression for us and the continued evolution of our volatility-related product line. Options on VIX will provide investors many new opportunities to trade and hedge volatility.”
Options on VIX will offer contract months of two near-term contracts months plus two additional months on the February quarterly cycle, and will have trading hours of 8:30 a.m. to 3:15 p.m. (Chicago Time). A more detailed listing of currently anticipated contract specifications for options on VIX follows.
The CBOE Volatility Index – more commonly referred to as “VIX” – is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500 (SPX) index option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
The underlying for options is the Jumbo CBOE Volatility Index (VXB), equal to 10 times the value of VIX. For example, when the level of VIX is 12.81, VXB would be 128.10.