Beyond VIX. Trading Volatility & Variance Across Asset Classes. CBOE RMC Europe October 2, 2013

Transcription

1 Beyond VIX Trading Volatility & Variance Across Asset Classes CBOE RMC Europe October 2, 2013

2 Life after VIX Culture of Innovation Grow from core competencies Leverage experience, apply to other asset classes Find strong partners Where do we add value? 2

3 Who Trades Volatility and Why? Negative correlation to equity returns and corporate credit Hedge equity/corporate credit exposure e.g., high-yield bond managers Hedge explicit volatility exposure e.g., option traders Hedge implicit volatility exposure e.g., hedge funds, risk arbitrageurs, insurance companies (VA and EIA writers), structured product issuers guarantee, principal-protected Unique properties create trading opportunities Rises rapidly when uncertainty increases, tends to fall more slowly. Mean reversion, fluid term structure Benefits of exchange-traded products Transparent, competitive pricing No ISDA agreements needed Central clearing, margin offsets 3

4 S&P 500 Variance Futures ( VA ) Exchange-traded futures that settle to the realized variance of the S&P 500 Index over the life of the contract. Designed to mimic an OTC Variance Swap Uses OTC quoting convention spot starting vol / vega Final settlement value adjusted to reflect daily accrual of interest payments on variation margin. VA contract listed for each SPX maturity Patent-pending contract design 4

5 S&P 500 Variance Futures Term Structure of S&P 500 Variance Futures & SPX Option Implied Volatility September 23, 2013 Source: CBOE 5

6 CBOE S&P 500 Short-Term Volatility Index New volatility index that measures short-term (9-day) expected volatility of S&P 500 First-ever volatility index to incorporate SPX Weeklys SM options Ticker VXST SM Unique Properties & Opportunities Event trade Term structure play Risk premium capture 6

7 Unique Properties & Opportunities Source: CBOE, Bloomberg Contango 7

8 Short-Term Volatility & VIX VXST complements VIX VXST is particularly responsive to SPX moves 60% 40% 20% VIX / VXST VXST volatility is higher than VIX vol-of-vol (186% v. 112%) VXST / VIX correlation: % -3% -2% -1% 0% 1% 2% 3% VXST % = SPX % Correlation = 0.71 VIX % = -7.2 SPX % Correlation = % -40% -60% SPX Data from June 1, 2012 through August 30, 2013 Source: CBOE, Bloomberg 8

9 Interest Rate Volatility Indexes Measures 1-year expected volatility of 10- yr. USD IR swap rates Uses streaming IDB swaption prices Measures 30-day expected volatility of 10- yr. U.S. T-Note prices Uses CME quotes for options on10-year T-Note futures Expressed in basis points Expressed as annualized volatility (%) 9

10 SRVX & VXTYN Source: CBOE, Bloomberg 10

11 Room for multiple IR volatility metrics? SRVX/VXTYN Correlation: 0.82 VXTYN volatility higher than SRVX (75% vs. 27%) Short-term ( gamma ) trades vs. Long-term ( vega ) trades Different indexes for different interest rate regimes Source: CBOE, Bloomberg 11

12 Other CBOE Volatility Indexes US Equity Foreign Equity Commodity Currency Single Stock VXN Nasdaq-100 (futures only) VXEEM Em. Mkts (EEM) (futures & options) GVZ Gold (GLD) (futures & options) EWZ Euro (FXE) VXAPL Apple, Inc. RVX Russell 2000 (futures 10/30/13) VXEWZ Brazil (EWZ) (futures & options) OVX Crude Oil (USO) (futures & options) VXGOG Google, Inc. VXV 3M S&P 500 VXFXI China (FXI) VXSLV Silver (SLV) VXGS Goldman Sachs VXD DJIA Equity Sector VXGDX Gold Miners (GDX) VXEFA EAFE (EFA) CME Volatility Indexes: OIV Crude Oil GIV Gold SIV Soybeans CIV Corn WIV - Wheat VXIBM IBM Corp. VXAZN Amazon 12

13 Differences create Opportunities Correlations fluctuate Subtle differences lead to unique trading opportunities VIX 1.00 VIX RVX VXN RUT NDX SPX VXEEM VXEWZ EEM EWZ OVX GVZ USO GLD RVX VXN RUT NDX SPX VXEEM VXEWZ EEM EWZ OVX GVZ USO GLD Source: CBOE, Bloomberg 13

14 Relative Value Opportunities Rolling 3-Month Correlations June 2011 through September 2013 Source: CBOE, Bloomberg 14

15 Commodity & Currency Volatility Indexes Option skew shifts as perceived risks change Variable correlations with related underlying OVX GVZ VXSLV EVZ USO GLD SLV FXE OVX 1.00 GVZ VXSLV EVZ USO GLD SLV FXE Source: CBOE, Bloomberg 15

16 Single Stock Volatility Indexes Very sensitive to earnings Corporate actions Forward pricing very difficult, complex behavior VXIBM 1.00 VXIBM VXGOG VXAPL VXAZN VXGS IBM GOOG AAPL AM ZN GS VXGOG VXAPL VXAZN VXGS IBM GOOG AAPL AM ZN GS Source: CBOE, Bloomberg 16

17 Earnings a key driver in single stock volatility AAPL Stock Price vs. VXAPL January 2011 through September 2013 AAPL Earnings Source: CBOE, Bloomberg 17

18 Can there be a VIX on any set of options? Plenty of demand Practical limitations Need enough option strikes Both OTM puts and calls Continuous quoting good / dark screens bad Nuances Ratio of strike interval to option underlying price Identifying zero-bid series 18

19 Disclaimer Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling OPTIONS, or at Futures trading is not suitable for all investors, and involves risk of loss. The information in this document is provided solely for general education and information purposes. Past performance is not indicative of future results. No statement within this document should be construed as a recommendation to buy or sell a security or future or to provide investment advice. This document contains index performance data based on back-testing, i.e., calculations of how the index might have performed prior to launch. Backtested performance information is purely hypothetical and is provided in this document solely for informational purposes. Supporting documentation for any claims, comparisons, statistics, or other technical data, will be supplied upon request. Standard &Poor s, S&P, and S&P 500 are registered trademarks of Standard & Poor s Financial Services, LLC and are licensed for use by Chicago Board Options Exchange, Incorporated (CBOE) and CBOE Futures Exchange, LLC (CFE). S&P does not sponsor, endorse, sell or promote any S&P index-based investment product. CBOE, CFE, CBOE Volatility Index, Chicago Board Options Exchange and VIX are registered trademarks and CBOE Futures Exchange, RVX, SPX, SRVX, VXD, VXN,VXV, VXEEM, VXEWZ, VXST, VXTYN and Weeklys are service marks of CBOE. All other trademarks and service marks are the property of their respective owners. Copyright 2013 Chicago Board Options Exchange, Incorporated. All Rights Reserved. CBOE 400 South LaSalle Street Chicago, IL

20 Contact Information: Bill Speth VP Research Chicago Board Options Exchange 400 South LaSalle Street Chicago, IL p. p