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Strategies & Market Trends : Waiting for the big Kahuna
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To: William H Huebl who wrote (31182)10/10/1998 6:36:00 PM
From: Haim R. Branisteanu  Read Replies (1) of 94695
 
CBOE Volatility Index - VIX

One measure of the level of implied volatility in index options is CBOE's Volatility Index, known by its ticker symbol VIX. VIX, introduced by CBOE in 1993, measures the volatility of the U.S. equity market.

It provides investors with up-to-the-minute market estimates of expected volatility by using real-time OEX index option bid/ask quotes. This index is calculated by taking a weighted average of the implied volatilities of eight OEX calls and puts.

The chosen options have an average time to maturity of 30 days. Consequently, the VIX is intended to indicate the implied volatility of 30-day index options. It is used by some traders as a general indication of index option implied volatility.

Implied volatility levels in index options change frequently and substantially. Consequently, when trading short-term index options, traders should forecast the index level, the time period, and the volatility level.

Traders of long-term index options should also include a forecast of interest rates. (The volatility discussions above are excerpts from the book Trading Index Options by James B. Bittman. This book is available through our online bookstore.)

For information to questions on VIX

Option Pricing

cboe.com
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