On Monday April 15th —
- the price of gold plunged 9.4% (its biggest daily drop in 30 years),
- the price of silver fell 11.3%,
- the CBOE Gold ETF Volatility Index (GVZ) rose 61.7% (a record one-day move), and
- new all-time records were established for daily trading volumes for VIX® futures, VIX options and GVZ futures.
Many investors are asking questions such as – what are the tools to help me gain a better idea of the cost of risk management strategies for a variety of asset types in my portfolio?
One good set of tools is CBOE’s set of 20 implied volatility indexes that are presented and updated at www.cboe.com/volatility.
The volatility skewness of various options also is an important consideration in the evaluation of costs of options strategies. In looking at the three charts below, note that the implied volatility is higher for the 90% moneyness than for the 100% moneyness (or at-the-money) for the SLV, GLD, EEM, and SPX options; for all these options there could be great investor demand for out-of-the-money puts to hedge against disastrous downside moves.
On the other hand, note that the note that the implied volatility is higher for the 110% moneyness than for the 100% moneyness (or at-the-money) for the VIX and VXEEM options; for these two options on stock index implied volatility, there could be great investor demand for calls on volatility indexes to help protect against disastrous downside moves in the equity portfolios.
To learn more about options and hedging, please visit www.cboe.com/LearnCenter