Investor fears spike, but VIX futures see volatility declining |
| Chicago Tribune - Aug 15, 2011 |
While the Dow Jones industrial average and Standard & Poor's 500 Index are gyrating wildly, one thing has been constant: investor fear. And you have to look no further than the Chicago Board Options Exchange's Volatility Index, or VIX, to see that quantified.
The VIX is a non-tradable index introduced by the CBOE in 1993 that represents one month of implied volatility in the S&P 500, incorporating information from calls (contracts to buy options at a certain price) and puts (contracts to sell options at a certain price).
"In its most basic sense, the VIX is a representation of how expensive options are in the market," said Michael Khouw, director U.S. equity derivatives at New York-based Cantor Fitzgerald. "Options are a form of insurance on the market. With the VIX, you're gauging how expensive insurance is."
The VIX gives "a standardized estimate of the market's expectation of future volatility," added John Hiatt, director of research at the CBOE. "With the VIX, you have one number you can refer to that allows you to compare levels of volatility in different time periods."
Read Full Article from Chicago Tribune
- Posted: 2011-08-15 12:05:22
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