Volatility Related Indexes and Tickers

Unless you have access to a Bloomberg terminal or something similar finding quotes and historical data for volatility indexes can be an adventure.  Below I’ve assembled links to the online resources that I’ve been able to find.  Links marked with a “$SFI” are historical data sets that I offer for sale—they don’t match the official indexes exactly, but they are very close. In many cases, …

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How Does the Cboe’s VIX® Index Work?

The Cboe did not create the VIX® as an academic exercise, or as a service to stock market prognosticators everywhere.  They created it because they wanted to make money on volatility.  It took them two tries, but the Cboe succeeded in developing a volatility index that forms the backbone of a host of volatility products.  The Cboe offers some of these products, but other companies have …

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Volatility and the Square Root of Time

It was not obvious (at least to me) that volatility theoretically scales with the square root of time (sqrt[t]).  For example,  if the market’s daily volatility is 0.5%, then theoretically the correct value of volatility for two days is the square root of 2 times the daily volatility (0.5% * 1.414 = 0.707%), or for a 5 day stretch 0.5% * sqrt(5) = 1.118%. This …

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The Volatility Term Structure is Driven by OTM Puts

The CBOE’s VIX® methodology calculates a single theoretically grounded number that quantifies virtually the entire volatility landscape for a specific point in time—pretty cool.  Prices for hundreds of different options with different expiration dates can be involved in the calculation.   This single number is very useful, but obviously, lots of information is discarded in the distillation.  I’ve wondered if the VIX’s compression is hiding some information …

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Top 11 Questions About the CBOE’s VIX

Based on searches that lead people to Six Figure Investing, these are the top 10 questions people ask about volatility investing: How can I buy/trade/invest in the CBOE’s VIX® index?   The short answer is that you can’t.  No one has figured out how to do this economically. However, there are quite a few investment approaches that allow you to trade in volatility, including futures, options on …

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