vix reconfigures monday 22nd

  1. 1,427 Posts.
    This is worth knowing. ...... Especially for objectively determining market those all important market bottoms with high and wild moments of anxiety, to get in ...... The CBOE VIX implied volatility proxy measure of objective market anxiety ( ie. Bigcharts.com code VIX or ^vix on Yahoo Finance ) will be reconfigured Monday 22nd , from a basis on the old only eight legacy OEX at the money stock options, to a far wider basing on the S&P500. ....

    This will fundamentally change it, I believe, giving it a narrower, smoothed, rather Logscale range of movement, when seen charted, slightly lower than previously. ..... The new less peaky absolute range, will most likely be from around 16, at complacent lows in anxiety, ( always a less than precise signal since it oftens works a rally top in a rough mirror image, for weeks, if not months ) through to 46.5 extreme high anxiety, in capitulative panic conditions, it's forte ....

    The more common new working range being from 18-19 at S&P500 index rally top, to around 40-44 in panic sell off from my reworked figures. 34-39 will be now be upper middling gut turn, and an opportunity to accumulate cheaply at intermediate flurries of anxiety. Thus the classic handwringing panic peaks of 53+ will be a memory for this specific code.

    The old VIX calculation however will continue behind the scenes, and gets the new code of VXO for reference.

    From the CBOE VIX link: http://www.cboe.com/micro/vix/introduction.asp
    "The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility. In September 2003 the Chicago CBOE is pleased to announce three developments relating to VIX:

    (1) Beginning September 22, 2003, CBOE intends to begin disseminating prices for a new VIX Index. In response to suggestions from customers regarding growth in certain markets in recent years, on September 22, 2003, the CBOE plans to make two key enhancements to the VIX methodology: http://www.cboe.com/micro/vix/method.asp

    1. Based on S&P 500 Options Prices. The new VIX will be based on prices of SPX options. Recent average daily volume for SPX options has grown to more than 140,000 contacts, and more than $800 billion in assets are now indexed to the S&P 500 Index. (Previously, the original-formula VIX was based on prices of the S&P 100 (OEX) Index Options, and CBOE will continue to calculate and disseminate the original-formula index with the ticker VXO.)

    2. New Formula for Calculation of VIX. The new formula that will take into account a broader range of strike prices (rather than using only near-the-money strikes as the original-formula index did). Each strike price will be weighted, with at-the-money strikes having the most weight. The new formula is intended to make VIX a better index for investors who manage risks associated with the growing markets for volatility and variance swaps.

    (2) VIX Futures and Options (Proposed To Be Offered 4th Quarter 2003) -- http://www.cboe.com/micro/vix/vix_fo.asp
    -- Contract Specifications: To Be Determined. The proposed VIX futures and options have a contract size of $500. Launch Date. Trading for VIX futures and options is planned to begin in the 4th quarter of 2003 (subject to regulatory approval)

    (3) CBOE Futures Exchange -- http://www.cboe.com/micro/vix/cfe.asp -- Here are some features of the new CBOE Futures Exchange (CFE): Approved by the Commodity Futures Trading Commission (CFTC) as a contract market in August 2003. Owned and operated by the Chicago Board Options Exchange. Electronic exchange with the CBOE direct technology as its trading platform. Intends to trade products based on the VIX Index in the 4th quarter of 2003 (subject to regulatory approval), with other products to follow. More details will be posted in the future at this website: www.cboe.com/vix.

    Other references: VIX Quick Reference Guide -- http://www.cboe.com/micro/vix/VIX_QRG.pdf

    VIX White Paper -- http://www.cboe.com/micro/vix/vixwhite.pdf




 
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