25 Years Ago, the VXO Index Topped 150

Twenty-five years ago, on October 19, 1987, the S&P 500 Index (SPX) fell by 20.5%, and the CBOE S&P 100 Volatility Index (VXO) rose by 313% to close at an all-time daily closing high of 150.19.

Below are key values for seven trading days in October 1987 –

VXO INDEX – 25 YEARS AGO – DAILY CLOSING VALUES www.cboe.com/VXO

 15-Oct-1987                27.86

16-Oct-1987                36.37

19-Oct-1987               150.19

20-Oct-1987               140.00

21-Oct-1987                73.91

22-Oct-1987               102.22

23-Oct-1987                98.81

 S&P 500 INDEX – 25 YEARS AGO – DAILY PRICE CHANGES

 15-Oct-87                        -2.3%

16-Oct-87                        -5.2%

19-Oct-87                        -20.5%

20-Oct-87                        5.3%

21-Oct-87                        9.1%

22-Oct-87                        -3.9%

23-Oct-87                        0.0%

 COMPARING THE VIX AND VXO INDEXES

Here are some key features of the VIX and VXO Indexes –

•  START DATE. The CBOE S&P 100 Volatility Index was introduced in 1993 and has a price data history going back to January 1986; it originally had the ticker symbol VIX, but in 2003 its ticker symbol was changed to VXO.  The CBOE Volatility Index^® (VIX^®) was introduced in 2003 and has a price data history going back to January 1990.

• UNDERLYING OPTIONS.  The CBOE Volatility Index (VIX) is a widely followed measure of market expectations of near-term volatility conveyed by S&P 500 (SPX) stock index option prices, while the VXO Index is measure of market expectations of near-term volatility conveyed by S&P 100 (OEX) index option prices.

• DAILY PRICE LEVELS OF VIX AND VXO INDEXES.  In the period from Jan. 1990 through Sept. 2012 –

• The average daily closing value was 20.49 for the VIX Index and 21.04 for the VXO Index;
• The highest daily closing levels were 80.86 for the VIX Index and 87.24 for the VXO Index;
• The lowest daily closing values were 9.31 for the VIX Index and 9.04 for the VXO Index.

25-YEAR CHANGES

Here are the % changes for four indexes in the 25-year time period from Oct. 19, 1987 through Oct. 19, 2012 –

• 1583%                     CBOE S&P 500 PutWrite Index (PUT)
• 1097%                     CBOE S&P 500 BuyWrite Index (BXM)
•  345%                       CBOE S&P 500 95-110 Collar Index (CLL)
• -89.4%                     CBOE S&P 100 Volatility Index (VXO)

ALL-TIME DAILY TRADING VOLUME RECORDS FOR VIX FUTURES AND OPTIONS

Investor interest in volatility indexes and related tradable products has grown in recent years.  Last month all-time single-day trading volume records were set for both –

• VIX futures on September 13, as 190,081 contracts traded; and
• VIX options on September 11, as a reported 1,221,403 contracts changed hands.

VIX FUTURES VOLUME IS UP 80%

Average daily volume for VIX futures in the first three quarters of 2012 was 86,022 (up 80% over the average daily volume in 2011).

QUESTION ABOUT POSSIBILITY OF A FUTURE BLACK SWAN EVENT

In the future, could we experience a day in which the VIX rose more than 300 percent to triple-digit territory?  I have asked this question to some financial experts, and some experts note that (unlike in 1987) we now have official circuit breakers to slow down intraday moves. On Dec. 21, 2007, the VIX closed at 18.47, and many “experts” probably would have said that the chances of VIX rising to record-breaking levels above 70 or 80 within the following year (with circuit-breakers) were extremely unlikely.  However, on Oct. 24, 2008, the VIX did hit an intraday high of 89.53.

Here are some quotes from a book by Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable –

“If you hear a ‘prominent’ economist using the word ‘equilibrium,’ or ‘normal distribution,’ do not argue with him; just ignore him, or try to put a rat down his shirt. … The inability to predict outliers implies the inability to predict the course of history …  ”

 LINKS TO MORE INFORMATION

More info (including spreadsheets and bibliogpaphy) is available at –

www.cboe.com/volatility

www.cboe.com/benchmarks

www.cboe.com/VIX