DOCSLIB.ORG

VIX and VIX Etns

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
VIX and VIX Etns VIX and VIX ETNs What They’re All About and How to Trade this Exciting Market Dan, The Trading God [email protected] http://tradinggods.net Ridgeline Media Group, LLC. 70 SW Century Drive Suite 100-148 Bend, Oregon 97702 VIX and VIX ETNs What They’re All About and How to Trade This Exciting Market Table of Contents Chapter 1: VIX Overview - What it is and how it Works Chapter 2: Three Ways to Trade VIX Chapter 3: Four VIX Trading Strategies Chapter 4: VIX Trader Chapter 5: VIX Resources Chapter 1: VIX Overview - What it is and how it Works: VIX is the Chicago Board Options Exchange (CBOE) Volatility Index and it shows the market expectation of 30 day volatility. The VIX Index is updated on a continuous basis and offers a picture of the expected market volatility in the S&P 500 during the next 30 days. The VIX Index was first introduced in 1993 and a second version was introduced in 2003 and is still in use today. VIX is also commonly known as the “fear index,” since volatility and the VIX index tend to rise during times that the S&P 500 is falling. Therefore, the VIX Index is said to measure the amount of fear or complacency in the market. Many analysts suggest that VIX is a predictive measure of market risk and future market action since this index is traded by some of the most professional traders in the world. However, there is also a large school of thought that suggests that VIX is a trailing indicator and so not suitable for attempts at market timing. This eBook focuses on the S&P 500 VIX Index and the different ways that retail investors and traders can participate in this fast moving market. The chart below gives a pictorial view of the VIX Index over the past ten years: chart courtesy of stockcharts.com From the chart we can see that VIX can make wild swings as market sentiment changes and that the average reading tends to be in the 20 range. Higher readings, typically above 30, are associated with times of intense volatility while readings in the teens represent times of stock market complacency. In recent history, VIX reached a high during the financial crisis of 2008-2009 and then had a long period of tranquility between 2013 and 2015. VIX uses the options in the front or second month and is always stated as a number between 0 and 100. This number represents the anticipated % movement in both directions of the S&P 500 over the next 30 days and is constantly updated as traders change their views of market volatility. VIX generally moves inversely to the S&P 500: The chart below shows how VIX tends to fall when the S&P 500 is climbing and rises as the S&P 500 is falling. chart courtesy of stockcharts.com This negative correlation is in play as much as 70-80% of the time and so can be used as a way to make directional bets on volatility which will generally decline as the S&P 500 gains in value. VIX Futures are generally in contango: VIX futures contracts generally are in contango which means that farther out months are more expensive than closer in months or the spot price. The reverse of contango is known as “backwardation” which means that closer months are more expensive and this happens during times of intense market stress. What this means to speculators is that the futures contracts will generally converge towards the cash price over time until expiration when they merge. So for a speculator to profit while contango is in effect, the difference between the cash price and futures price must first be overcome before a profit can be realized. chart courtesy of CBOE Options Hub Contango is the dominant structure of VIX while backwardation will take place during times of VIX spikes. Most of the time VIX futures trade at a premium to VIX spot price and it’s very important to understand this structure in order to successfully trade the VIX Index. The chart above from VIXCentral.com we can see how VIX is in backwardation during September and October and then returns to contango in the future months as the market anticipates a return to normal after a period of intense stress. VIX will tend to be in contango 70-80% of the time and the periods of backwardation tend to be short lived and during times of intense stock market stress. VIX is mean reverting: Another characteristic of the VIX Index is that it tends to be “mean reverting,” that is, it tends to return to an average level after extreme moves either up or down in direction. This mean range tends to be in the 15-20 range in recent history and so this phenomenon also makes VIX trading potentially profitable for short term trading but potentially problematic for trend followers or long term investors. The “fear” spikes tend to be very short term and severe but short lived as fear then drops and returns to its normal mean. VIX typically does not trend but rather spikes up and down around the median range. VIX Trading Strategies: 1. VIX can be used as portfolio insurance: This strategy uses long VIX options or VIX ETF positions to protect a stock or ETF portfolio. A long VIX position is designed to increase in value as the stock market declines and so can act as a portfolio insurance policy. 2. VIX can be used to make directional bets: Traders with nimble systems and effective risk management discipline can take advantage of the rapid moves in VIX, both up and down, away from and towards the mean, to seek profits in these fast moving markets. VIX Trading Vehicles: 1. VIX Futures contracts: VIX Futures contracts trade electronically on the CBOE Futures Exchange. 2. VIX Options: VIX Options started trading in 2006 and are listed on a regulated exchange. 3. VIX ETFs: VIX ETFs are offered by several major providers and offer the opportunity to trade long, short or leveraged positions related to the VIX Index. Chapter 2: Three Ways to Trade VIX: Three common investment vehicles exist for retail traders to participate in VIX trading. 1. VIX Futures: VIX Futures are traded on the CBOE Futures exchange like any other futures product. To trade this market, investors are required to open a futures trading account with a commodity trading firm. VIX Futures are a bet on implied volatility of the VIX Index and can be used as a directional bet or to hedge portfolios. They can also be used to diversify portfolios. VIX futures contracts are standard futures contracts that settle at cash upon expiration. They track 30 day implied volatilities on a monthly basis so that a May futures contract is a forward contract saying what implied volatility will be on the expiration date of the May contract. 2. VIX Options: VIX Options started trading in 2006 and are offered as regulated options just like an option on a stock or ETF. VIX options can be traded within an approved brokerage account and can be used for risk management or a speculative investment. VIX options allow investors to make a leveraged bet to buy or sell option volatility. Their pricing is based on forward VIX prices and VIX options generally move inversely to stock indexes. VIX options can be used to hedge a stock or ETF portfolio or for directional speculation and indicate how much options traders are willing to pay for options to protect their investments during downside moves. VIX options are traded in margin accounts just like normal options. Typically VIX options trading will require Level 2 approval from your brokerage firm to buy calls or puts. VIX options may not track the VIX spot price well because the underlying contract is a futures contract, not the spot price of VIX. Typically a large spike in VIX will show up as a smaller move in the VIX option and vice versa for a big drop in VIX. VIX options typically have wide bid/ask spreads and so require careful order entry. Like regular options, VIX options that are purchased will decline in value over time and this can be accentuated by the fact that VIX is oftentimes in contango as discussed earlier in this book. VIX Options offer several trading strategies: Long Call: A long call is a strategy for an investor who believes that volatility is going to increase which should make a call option rise in value. A long call bet is based upon a strike price and a time period, just like a normal option, but one also needs to consider the price of the underlying futures contract for the time period and its price relative to the current spot price which, if more expensive, could work against a long call position. Long Put: A long put option position would be taken by a speculator who believes that VIX will decline and this will be affected by the strike price, time period and price of the underlying futures contract. Spread Strategies: Various spread strategies can deployed by sophisticated options traders and these include both put and call spreads. Selling Options Strategies: Like regular options, VIX options traders can deploy various selling strategies like selling naked calls, selling naked puts, strangles, various spreads or selling covered call options. 3. VIX ETFs: VIX ETFs, or ETNs, as they’re more commonly called, are a relatively new way for VIX traders to gain exposure to this market within the confines of a regular brokerage account.
Load more

Recommended publications
  • Estimating 90-Day Market Volatility with VIX and VXV
    Estimating 90-Day Market Volatility with VIX and VXV Larissa J. Adamiec, Corresponding Author, Benedictine University, USA Russell Rhoads, Tabb Group, USA ABSTRACT The CBOE Volatility Index (VIX) has historically been a consistent indicator of 30-day or 1-month (21-day actual) realized market volatility. In addition, the Chicago Board Options Exchange also quotes the CBOE 3-Month Volatility Index (VXV) which indicates the 3-month realized market volatility. This study demonstrates both VIX and VXV are still reliable indicators of their respective realized market volatility periods. Both of the indexes consistently overstate realized volatility, indicating market participants often perceive volatility to be much higher than volatility actually is. The overstatement of expected volatility leads to an indicator which is consistently higher. Perceived volatility in the long-run is often lower than volatility in the short-run which is why VXV is often lower than VIX (VIX is usually lower than VXV). However, the accuracy of the VXV is roughly 35% as compared with the accuracy of the VIX at 60.1%. By combining the two indicators to create a third indicator we were able to provide a much better estimate of 64-Day Realized volatility, with an accuracy rate 41%. Due to options often being over-priced, historical volatility is often higher than both realized volatility or the volatility index, either the VIX or the VXV. Even though the historical volatility is higher we find the estimated historical volatility to be more easily estimated than realized volatility. Using the same time period from January 2, 2008 through December 31, 2016 we find the VIX estimates the 21-Day Historical Volatility with 83.70% accuracy.
    [Show full text]
  • Copyrighted Material
    Index 12b-1 fee, 68–69 combining with Western analysis, 3M, 157 122–123 continuation day, 116 ABC of Stock Speculation, 157 doji, 115 accrual accounting, 18 dragonfl y doji, 116–117 accumulated depreciation, 46–47 engulfi ng pattern, 120, 121 accumulation phase, 158 gravestone doji, 116, 117, 118 accumulation/distribution line, hammer, 119 146–147 hanging man, 119 Adaptive Market Hypothesis, 155 harami, 119, 120 Altria, 29, 127, 185–186 indicators 120 Amazon.com, 151 long, 116, 117, 118 amortization, 47, 49 long-legged doji, 118 annual report, 44–46 lower shadow, 115 ascending triangle, 137–138, 140 marubozu, 116 at the money, 192 real body, 114–115 AT&T, 185–186 segments illustrated, 114 shadows, 114 back-end sales load, 67–68 short,116, 117 balance sheet, 46–50 spinning top, 118–119 balanced mutual funds, 70–71 squeeze alert, 121, 122, 123 basket of stocks, 63 tails, 114 blue chip companies, 34 three black crows, 122, 123 Boeing, 134–135 three white soldiers, 122, 123 book value, 169 trend-based, 117–118 breadth, 82–83, 97 upper shadow, 115 breakaway gap, 144 wicks, 114 break-even rate, 16–17 capital assets, 48, 49 breakout, 83–84, 105–106 capitalization-based funds, 71 Buffett, Warren, 152 capitalization-weighted average, 157 bull and bear markets,COPYRIGHTED 81, 174–175 Caterpillar, MATERIAL 52–54, 55, 57, 58, 59, 131 Bureau of Labor Statistics (BLS), 15 CBOE Volatility Index (VIX), 170, 171 Buy-and-hold strategy, 32, 204–205 Chaikin Money Flow (CMF), 146 buy to open/sell to open, 96 channel, 131–132 charting calendar spreads, 200–201
    [Show full text]
  • Predicting SARS-Cov-2 Infection Trend Using Technical Analysis Indicators
    medRxiv preprint doi: https://doi.org/10.1101/2020.05.13.20100784; this version posted May 20, 2020. The copyright holder for this preprint (which was not certified by peer review) is the author/funder, who has granted medRxiv a license to display the preprint in perpetuity. All rights reserved. No reuse allowed without permission. Predicting SARS-CoV-2 infection trend using technical analysis indicators Marino Paroli and Maria Isabella Sirinian Department of Clinical, Anesthesiologic and Cardiovascular Sciences, Sapienza University of Rome, Italy ABSTRACT COVID-19 pandemic is a global emergency caused by SARS-CoV-2 infection. Without efficacious drugs or vaccines, mass quarantine has been the main strategy adopted by governments to contain the virus spread. This has led to a significant reduction in the number of infected people and deaths and to a diminished pressure over the health care system. However, an economic depression is following due to the forced absence of worker from their job and to the closure of many productive activities. For these reasons, governments are lessening progressively the mass quarantine measures to avoid an economic catastrophe. Nevertheless, the reopening of firms and commercial activities might lead to a resurgence of infection. In the worst-case scenario, this might impose the return to strict lockdown measures. Epidemiological models are therefore necessary to forecast possible new infection outbreaks and to inform government to promptly adopt new containment measures. In this context, we tested here if technical analysis methods commonly used in the financial market might provide early signal of change in the direction of SARS-Cov-2 infection trend in Italy, a country which has been strongly hit by the pandemic.
    [Show full text]
  • A Test of Macd Trading Strategy
    A TEST OF MACD TRADING STRATEGY Bill Huang Master of Business Administration, University of Leicester, 2005 Yong Soo Kim Bachelor of Business Administration, Yonsei University, 200 1 PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In the Faculty of Business Administration Global Asset and Wealth Management MBA O Bill HuangIYong Soo Kim 2006 SIMON FRASER UNIVERSITY Fall 2006 All rights reserved. This work may not be reproduced in whole or in part, by photocopy or other means, without permission of the author. APPROVAL Name: Bill Huang 1 Yong Soo Kim Degree: Master of Business Administration Title of Project: A Test of MACD Trading Strategy Supervisory Committee: Dr. Peter Klein Senior Supervisor Professor, Faculty of Business Administration Dr. Daniel Smith Second Reader Assistant Professor, Faculty of Business Administration Date Approved: SIMON FRASER . UNI~ER~IW~Ibra ry DECLARATION OF PARTIAL COPYRIGHT LICENCE The author, whose copyright is declared on the title page of this work, has granted to Simon Fraser University the right to lend this thesis, project or extended essay to users of the Simon Fraser University Library, and to make partial or single copies only for such users or in response to a request from the library of any other university, or other educational institution, on its own behalf or for one of its users. The author has further granted permission to Simon Fraser University to keep or make a digital copy for use in its circulating collection (currently available to the public at the "lnstitutional Repository" link of the SFU Library website <www.lib.sfu.ca> at: ~http:llir.lib.sfu.calhandlell8921112~)and, without changing the content, to translate the thesislproject or extended essays, if .technically possible, to any medium or format for the purpose of preservation of the digital work.
    [Show full text]
  • Finance Feature
    finance feature by Douglas Carlsen, DDS Face it: dentists are competitive and compulsive. We have to be to perform the miracles of our daily work. When I tell the average person that tooth “preparation” is performed with a drill running at 400,000rpm on a moving target within 1/16 inch or less of the nerve 90 percent of the time, I often hear, “No wonder you guys scare me to death!” With that compulsive drive comes the idea that we can invest smarter than the average Joe. Yet, according to noted author Larry Swedroe: “…the purchase by investors of individ- ual stocks… would seem to be the ultimate in controlling your own portfolio. However, in pursuing this course, you create two problems. First, you likely cannot achieve the extensive diversification that the use of mutual funds accomplishes. Second, the evidence tells us that individual investors who select their own stocks underperform appropriate benchmarks by significant margins.”1 Financial planners who utilize academic-based strategy agree that individuals cause little damage by actively trading a small portion of the portfolio (five to 10 percent) as long as the great bulk of one’s investments are in passive index funds. Nevertheless, many doctors choose to actively trade a significant portion of their funds. Since many of you will or already have taken the trading plunge, let’s examine the basics, then hear comments from a dentist who has done well since 2001 with active trading. Active traders normally use fundamental analysis or technical analysis, and often both. 1. Larry Swedroe, Investment Mistakes Even Smart Investors Make, McGraw Hill, 2012, p.24.
    [Show full text]
  • Asset Allocation POINT WHAT DOES a LOW VIX TELL US June 2017 ABOUT the MARKET? Timely Intelligence and Analysis for Our Clients
    PRICE Asset Allocation POINT WHAT DOES A LOW VIX TELL US June 2017 ABOUT THE MARKET? Timely intelligence and analysis for our clients. KEY POINTS . The financial press has been paying considerable attention lately to the Chicago Board Options Exchange Volatility Index (VIX), with many financial pundits citing recent low readings on the VIX as evidence of investor complacency and rising equity risk. Robert Harlow, CFA, CAIA . Quantitative Analyst Media coverage often implies that a low current VIX is a strong signal of expected Asset Allocation future volatility and will be followed by a sell-off in U.S. equities and other risk-seeking assets. Historical evidence shows that, over the near term, investors typically overestimate the next 30-day volatility of the S&P 500 Index. Further, when the VIX has been low, U.S. equities have outperformed U.S. bonds on average over the next 12 months, regardless of the change in the VIX over that horizon. Without a meaningful and prolonged catalyst, we do not believe a low level of the VIX David Clewell, CFA alone implies investor complacency or an immediate danger of a risk-off event. Research Analyst Asset Allocation BACKGROUND There has been much discussion in the financial press recently about the danger of investor complacency—with a low VIX frequently cited as compelling evidence that equity investors have grown too relaxed about potential risks. The problem is that it is difficult to determine whether markets are truly complacent or not; we can’t survey all investors and, even if we could, how many investors would admit that they were complacent? Instead, we take a mental shortcut and presume that something we can measure is a good proxy for the thing we actually care about.
    [Show full text]
  • Proquest Dissertations
    INFORMATION TO USERS This manuscript has been reproduced from the microfilm master. UMI films the text directly from the original or copy sutxnitted. Thus, some thesis and dissertation copies are in typewriter face, while others may be from any type of computer printer. The quality of this reproduction is dependent upon the quality of the copy submitted. Broken or indisünct print, colored or poor quality illustrations and photographs, print bleedthrough, substandard margins, and improper alignment can adversely affect reproduction. In the unlikely event that the author did not send UMI a complete manuscript and there are missing pages, these will be noted. Also, if unauthorized copyright material had to be removed, a note will indicate the deletion. Oversize materials (e.g., maps, drawings, charts) are reproduced by sectioning the original, beginning at the upper left-hand comer and continuing from left to right in equal sections with small overlaps. Photographs included in the original manuscript have been reproduced xerographically in this copy. Higher quality 6” x 9” black and white photographic prints are available for any photographs or illustrations appearing in this copy for an additional charge. Contact UMI directly to order. Bell & Howell Information and Leaming 300 North Zeeb Road. Ann Arbor, Ml 48106-1346 USA 800-521-0600 UMÏ METAPHORS OF EXCHANGE AND THE SHANGHAI STOCK MARKET DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in the Graduate School o f The Ohio State University By Susan Diane Menke, M A ***** The Ohio State University 2000 Dissertation committee: Approved by: Dr.
    [Show full text]
  • Forecasting Direction of Exchange Rate Fluctuations with Two Dimensional Patterns and Currency Strength
    FORECASTING DIRECTION OF EXCHANGE RATE FLUCTUATIONS WITH TWO DIMENSIONAL PATTERNS AND CURRENCY STRENGTH A THESIS SUBMITTED TO THE GRADUATE SCHOOL OF NATURAL AND APPLIED SCIENCES OF MIDDLE EAST TECHNICAL UNIVERSITY BY MUSTAFA ONUR ÖZORHAN IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PILOSOPHY IN COMPUTER ENGINEERING MAY 2017 Approval of the thesis: FORECASTING DIRECTION OF EXCHANGE RATE FLUCTUATIONS WITH TWO DIMENSIONAL PATTERNS AND CURRENCY STRENGTH submitted by MUSTAFA ONUR ÖZORHAN in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Computer Engineering Department, Middle East Technical University by, Prof. Dr. Gülbin Dural Ünver _______________ Dean, Graduate School of Natural and Applied Sciences Prof. Dr. Adnan Yazıcı _______________ Head of Department, Computer Engineering Prof. Dr. İsmail Hakkı Toroslu _______________ Supervisor, Computer Engineering Department, METU Examining Committee Members: Prof. Dr. Tolga Can _______________ Computer Engineering Department, METU Prof. Dr. İsmail Hakkı Toroslu _______________ Computer Engineering Department, METU Assoc. Prof. Dr. Cem İyigün _______________ Industrial Engineering Department, METU Assoc. Prof. Dr. Tansel Özyer _______________ Computer Engineering Department, TOBB University of Economics and Technology Assist. Prof. Dr. Murat Özbayoğlu _______________ Computer Engineering Department, TOBB University of Economics and Technology Date: ___24.05.2017___ I hereby declare that all information in this document has been obtained and presented in accordance with academic rules and ethical conduct. I also declare that, as required by these rules and conduct, I have fully cited and referenced all material and results that are not original to this work. Name, Last name: MUSTAFA ONUR ÖZORHAN Signature: iv ABSTRACT FORECASTING DIRECTION OF EXCHANGE RATE FLUCTUATIONS WITH TWO DIMENSIONAL PATTERNS AND CURRENCY STRENGTH Özorhan, Mustafa Onur Ph.D., Department of Computer Engineering Supervisor: Prof.
    [Show full text]
  • Futures & Options on the VIX® Index
    Futures & Options on the VIX® Index Turn Volatility to Your Advantage U.S. Futures and Options The Cboe Volatility Index® (VIX® Index) is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index® (SPX) option prices. Since its introduction in 1993, the VIX® Index has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. To learn more, visit cboe.com/VIX. VIX Futures and Options Strategies VIX futures and options have unique characteristics and behave differently than other financial-based commodity or equity products. Understanding these traits and their implications is important. VIX options and futures enable investors to trade volatility independent of the direction or the level of stock prices. Whether an investor’s outlook on the market is bullish, bearish or somewhere in-between, VIX futures and options can provide the ability to diversify a portfolio as well as hedge, mitigate or capitalize on broad market volatility. Portfolio Hedging One of the biggest risks to an equity portfolio is a broad market decline. The VIX Index has had a historically strong inverse relationship with the S&P 500® Index. Consequently, a long exposure to volatility may offset an adverse impact of falling stock prices. Market participants should consider the time frame and characteristics associated with VIX futures and options to determine the utility of such a hedge. Risk Premium Yield Over long periods, index options have tended to price in slightly more uncertainty than the market ultimately realizes. Specifically, the expected volatility implied by SPX option prices tends to trade at a premium relative to subsequent realized volatility in the S&P 500 Index.
    [Show full text]
  • COVID-19 Update Overview
    COVID-19 Update 03rd April 2020 Overview With the ongoing situation around the Covid-19 pandemic, all of our lives are currently being impacted. Governments around the world have imposed some form of lockdown to contain the spread of the pandemic. Financial markets are not being spared. Central Banks have intervened with monetary and fiscal measures aimed at shoring up the state of the global economy. Table 1 provides an overview of the performance of the major markets. As can be seen, equity markets have been significantly down since the onset of the crisis, ranging from -9.8% across China, -20.0% across the US (S&P500) and -26.5% across France. The YTD performance was mitigated by a strong rebound seen during the last week of March (see our “Dead Cat Bounce” section later in this article). Oil prices fell significantly over the quarter with a YTD performance of -66.5%, largely in part due to the price war between Saudi Arabia and Russia as well as the decreased global demand due to several areas of the world going into confinement. Undoubtedly volatility spiked with the VIX, an indicator of perceived risk in the markets, reaching levels higher than those seen during the financial crisis of 2008. Since Since Index 23-Mar-20 19-Feb-20 YTD 1Y 3Y 5Y 10Y S&P 500 15.5% -23.7% -20.0% -8.8% 9.1% 23.9% 120.3% Dow Jones 17.9% -25.3% -23.2% -15.5% 5.7% 21.9% 100.9% Nasdaq 12.2% -21.6% -14.2% -0.4% 30.2% 55.6% 219.4% UK 13.6% -23.9% -24.8% -22.1% -23.0% -17.7% 0.0% France 12.3% -28.1% -26.5% -17.8% -13.6% -13.5% 10.3% China 3.4% -7.6% -9.8% -11.0%
    [Show full text]
  • The DB Currency Volatility Index (CVIX): a Benchmark for Volatility
    Global Foreign Excahnge Deutsche Bank@ October 2007 Deutsche Bank Guide To Currency Indices Global Markets Saravelos Global Hzead Global Head FX StrategyBilal Jason Rashid James Torquil George Hafeez Batt Hoosenally Malcolm Wheatley Editor Contributors George Saravelos Mirza Baig Jason Batt Bilal Hafeez FX Strategy EM FX Strategy Global Head Global Head FX Index Products FX Strategy Rashid Hoosenally Caio Natividade James Malcolm Global Head FX Derivatives Strategy EM FX Strategy Global Risk Strategy Deutsche Bank@ Guide to Currency Indices October 2007 Table of Contents Introduction............................................................................................................................. 3 Overview ................................................................................................................................ 4 The Deutsche Bank Menu of Currency Indices...................................................................... 7 Currency Markets: Money Left on the Table?........................................................................ 9 Tactical Currency Indices DB G10 Trade-Weighted Indices: From Theory to Practice.................................................. 18 DB EM Asia Policy Baskets .................................................................................................. 22 The Emerging Asia Reserves, Liquidity and Yield (EARLY) Index......................................... 26 The DB Currency Volatility Index (CVIX): A Benchmark for Volatility ...................................
    [Show full text]
  • VIX Futures As a Market Timing Indicator
    Journal of Risk and Financial Management Article VIX Futures as a Market Timing Indicator Athanasios P. Fassas 1 and Nikolas Hourvouliades 2,* 1 Department of Accounting and Finance, University of Thessaly, Larissa 41110, Greece 2 Department of Business Studies, American College of Thessaloniki, Thessaloniki 55535, Greece * Correspondence: [email protected]; Tel.: +30-2310-398385 Received: 10 June 2019; Accepted: 28 June 2019; Published: 1 July 2019 Abstract: Our work relates to the literature supporting that the VIX also mirrors investor sentiment and, thus, contains useful information regarding future S&P500 returns. The objective of this empirical analysis is to verify if the shape of the volatility futures term structure has signaling effects regarding future equity price movements, as several investors believe. Our findings generally support the hypothesis that the VIX term structure can be employed as a contrarian market timing indicator. The empirical analysis of this study has important practical implications for financial market practitioners, as it shows that they can use the VIX futures term structure not only as a proxy of market expectations on forward volatility, but also as a stock market timing tool. Keywords: VIX futures; volatility term structure; future equity returns; S&P500 1. Introduction A fundamental principle of finance is the positive expected return-risk trade-off. In this paper, we examine the dynamic dependencies between future equity returns and the term structure of VIX futures, i.e., the curve that connects daily settlement prices of individual VIX futures contracts to maturities across time. This study extends the VIX futures-related literature by testing the market timing ability of the VIX futures term structure regarding future stock movements.
    [Show full text]