VIX Measures Traders Haven’t Heard of

06/04/2012 1:30 pm EST


Marty Kearney

Senior Staff Instructor, The Options Institute, CBOE

While the primary VIX covers SPX options, the CBOE’s Marty Kearney explains that over 20 other VIX measures exist that track commodities like gold and even benchmarks like individual stocks.

Over the last few years, if you’re not trading the VIX, you are at least watching it to get a feel for the market, and we all know it is a measurement of volatility of the S&P 500, but we have seen other VIX recently, and our guest today is Marty Kearney from the CBOE to talk about that.

So Marty, there are other types of VIX; what are they?

We have a list of 20-25 different products that are in the VIX complex right now, and some of the ones that are getting a lot of traction—some are benchmarks and some are tradable products—but some of the ones are the emerging market VIX, VIX on gold, and VIX on oil.

We just got approval recently for tracking the volatility of Brazil stocks, so we have a lot of different products, whether they are stocks, or baskets of stocks, or commodities for which people are very curious as to what is going on with the volatility.

So let’s talk about a gold trader who is maybe trading gold futures or something like that: how would the gold VIX help them get an idea of what is going on in the market?

I think it might tell them what the sentiment is for gold and how volatile the expected range might be.

I think it also gives them some very good tracking tools where they can very quickly find out the sentiment, and if it is a tradable product, is there something that I can take advantage of with that product?

Lately the VIX has been lower than it has been in a longer time. Is that telling you anything about what the sentiment is at the time?

Yeah, and you know, we don’t know when people are going to be looking at this, and what is high and what is low is kind of a relative area, but with low volatility, the sentiment is very calm; complacency is the idea with low volatility. Low volatility and low VIX kind of coincides with market tops.

I’m not saying this is a leading indicator—some people think it is—but there is a lot of complacency in the markets, and I’m seeing as we are taping this that the talking heads are only talking about how high we are going; I haven’t heard anybody talking about how low we could go.

Yeah, something to be aware of. Now what about volatility on individual stocks; what do we have there?

Yeah, we are trying something: we are tracking the volatility of five different stocks. We are looking at Apple (AAPL), (AMZN), Google (GOOG), Goldman Sachs (GS), and IBM (IBM), the kind of benchmark stocks that people follow that are often in the news.

This is just a quick tool for traders or investors to look at one product and say “This is the volatility of IBM; what does that tell me?”

If they have been watching the volatility of IBM, they are now able to say “Well, it is going up a little bit, or it is going down a little bit; maybe that is telling me something.”

And is this tradable or is it just a benchmark?

This is a just a benchmark on the stocks.

Alright, so if I’m long Google, for instance, it might tell me if the volatility is getting low, it might be time to think about selling off some.

Or it could be a good time to hedge; you know, maybe buy a productive put or a put spread or do a collar or something. Maybe there is something there that can tell you something.

Do you see that list of stocks expanding?

I think it could. Right now, no, we are going to keep it right where it is, but at this point in time, we keep adding the volatility like we just added Brazil in the emerging market complex, so that is at where you can see the whole list of what is out there.

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