Q&A on VIX from CBOE Webcast

Yesterday I hosted a webcast for CBOE on trading exchange traded products that base their performance on VIX strategies.  During the webcast Barb and I fielded several very good questions regarding VIX.  A few highlights are below –

Can you comment on the recent relatively low level of VIX?
VIX has been under 20 and at low levels for a few weeks based on a couple of factors.  First, there is a historical inverse relationship between VIX and the S&P 500.  As the S&P 500 is making post 2008 crisis highs, VIX is under a bit of pressure.  Also, remember VIX is a measure of implied volatility.  Recent market volatility as measured by price changes in the S&P 500 has been in the single digits.  This lack of realized volatility in the overall market has resulted in a little pressure on VIX as well.

Why is VXX trading at 9.93 when the September VIX Future is trading at 16.45 and October VIX Future at 18.30 (prices were mid-day on September 11)?
The performance of VXX is based on an index that tracks a portfolio holding the front two month VIX futures contracts.  However, the absolute price of VXX has nothing to do with the prices of the two futures contracts that comprise the underlying index.  Much like the S&P 500 index at 1430 does not have a direct relationship to the prices of the stocks that comprise the S&P 500.

What is the difference between short-term and mid-term VIX exchange traded products?
The exchange traded products that focus on short-term VIX futures are comprised of futures that expire in the next two months (currently September and October).  VXX, VIXY, and VIIX would qualify as short-term.  Mid-term exchange traded products focus on the fourth through seventh month VIX futures (currently December, January, February, and March).  VXZ, VIIZ, and VIXM would be common examples of mid-term exchange traded products.

Could you give an overview of VVIX since we are talking about VIX trading?
The CBOE VVIX Index is an indicator of the expected volatility of the VIX.  This is similar to VIX being an indicator of the expected volatility of the S&P 500.  VVIX is also referred to as the VIX of VIX.  The historic range has been mostly in the 80 to 120 range and along with the complacency seen in VIX, VVIX has been closer to 80 than 120 as of late.

A rebroadcast of the webcast on trading VIX Exchange Traded Products will be available in a couple of days and may be found at the following link – www.cboe.com/webcasts

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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