V. 22:5 (58-61): Four Measures Of Market Volatility by Frederic Ruffy

V. 22:5 (58-61): Four Measures Of Market Volatility by Frederic Ruffy
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Four Measures Of Market Volatility by Frederic Ruffy

How do you read the CBOEs new measures of volatility? Find out here.

The CBOE volatility index (VIX) was last modified in September 2003. The Chicago Board Options Exchange (CBOE) reconstructed the index ahead of a planned launch of options and futures on the index. While the debut of these new options and futures products is expected in late March 2004 (as of this writing in early March) pending regulatory approval, the old VIX started appearing under the symbol VXO, and the new formula began, continuing the ticker symbol VIX.

Today, both indexes offer real-time information concerning implied volatility in the options market. In addition, traders can gauge volatility trends using two other relatively new indexes the Nasdaq 100 volatility index (VXN) and the Nasdaq QQQ volatility index (QQV). In order to make sense of all these volatility indexes, lets take a look at what they represent and what makes each one unique.

USING VOLATILITY

The CBOE launched the original VIX in 1993. Eleven years later, much has changed in the options markets, and as a result, the CBOE decided that it was tune-up time for the volatility index. The most significant change is that, while the old index was based on the implied volatility (IV) of Standard & Poors 100 index (OEX) options, the new volatility index is derived from the more actively traded and liquid S&P 500 (SPX) options contract.




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