Cboe Global Markets (Cboe) VIX of VIX (VVIX)
What Is the Cboe VIX of VIX (VVIX)?
VIX of VIX (or VVIX) is a measure of the volatility of the Cboe Global Markets (Cboe) Volatility Index (VIX). The Cboe's VIX measures the short-term volatility of the S&P 500 indexes, and the VVIX measures the volatility of the price of the VIX. At the end of the day, VVIX is a measure of the volatility of the S&P 500 index and insinuates how rapidly market sentiment changes.
Figuring out the VVIX
The Cboe volatility index — or VIX Index — was begun in 1993. In 2004, VIX futures and options started trading. The Cboe VIX measures the short-term (30-day) market volatility of the option prices of the S&P 500 Index (SPX), taken from a scope of both call and put options. VIX levels over 30 generally will quite often demonstrate high volatility; those below 20 will quite often show low volatility.
The VIX is deciphered as an indicator of the level of investor confidence or fear in the market, and in this way the level of investment risk, yet it is commonly known as the "vulnerability index." Higher premiums on VIX options show higher levels of vulnerability. Trading on VIX levels allows investors to invest in market volatility no matter what the real bearing of stock prices, and it gives an opportunity to expand a portfolio.
VIX of VIX, or VVIX, thusly, allows investors to put their money on the speed of changes of the volatility of stocks as opposed to just on the volatility of stocks themselves. VIX of VIX influences the heading of VIX options: VIX prices are determined in view of the VIX of VIX. VVIX is calculated utilizing the very calculations that determine VIX option prices.
How Might Investors Capitalize on the VIX of VIX?
Investors can benefit from utilizing the VIX of VIX on the grounds that it gives valuable understanding into VIX option and future prices, including the following data:
- The expected volatility of the VIX
- The expected volatilities that influence the heading of VIX option prices with differing expiration dates
- An overall thought of market confidence in the VIX future values
Investors can capitalize on volatility when there are errors between VIX futures prices and their fair values. Traps to investing in the VIX itself incorporate higher commissions and different tax treatment. It can likewise be riskier to invest in the VIX on the grounds that options and futures have set expiration dates — the investor needs to anticipate both the volatility and the time span in which it will arrive at that level.
The most common and fundamental method for adding VIX to a portfolio is through exchange-traded notes (ETNs), while options and futures are riskier however have bigger settlements. Options have inherent leverage, and that means returns are higher, yet their prices can change from the VIX since they depend on expected forward value. They are traded European-style, and that means they can't be practiced before the expiration date. Futures additionally have inherent leverage, and their prices depend on the forward value of VIX, however the genuine value might vary.
- The Cboe's VVIX (VIX of VIX) is a measure of the change of volatility in the VIX volatility index.
- VVIX measures how quickly S&P 500 volatility changes, and is in this manner a measure of the volatility of the index.
- Investors can utilize the VVIX and its derivatives to hedge against volatility swings or bet on changes in the VIX options market.