23 lines
1.4 KiB
Plaintext
23 lines
1.4 KiB
Plaintext
CBOE Volatility Index
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®
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Often traders look to the implied volatility of the market as a whole for
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guidance on the IV of individual stocks. Traders use the Chicago Board
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Options Exchange (CBOE) Volatility Index® , or VIX® , as an indicator of
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overall market volatility.
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When people talk about the market, they are talking about a broad-based
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index covering many stocks on many diverse industries. Usually, they are
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referring to the S&P 500. Just as the IV of a stock may offer insight about
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investors’ feelings about that stock’s future volatility, the volatility of
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options on the S&P 500—SPX options—may tell something about the
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expected volatility of the market as a whole.
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VIX is an index published by the Chicago Board Options Exchange that
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measures the IV of a hypothetical 30-day option on the SPX. A 30-day
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option on the SPX only truly exists once a month—30 days before
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expiration. CBOE computes a hypothetical 30-day option by means of a
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weighted average of the two nearest-term months.
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When the S&P 500 rises or falls, it is common to see individual stocks
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rise and fall in sympathy with the index. Most stocks have some degree of
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market risk. When there is a perception of higher risk in the market as a
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whole, there can consequently be a perception of higher risk in individual
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stocks. The rise or fall of the IV of SPX can translate into the IV of
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individual stocks rising or falling. |