July 3, 2013 – Over the past two days news reports have noted unrest in Portugal and Egypt and in the oil markets. A recent Reuters report noted that —
“Global equity markets slid on Wednesday on worries over signs of slowing growth in China and deepening political turmoil in Portugal … U.S. stocks bucked the trend, however, rising in a shortened session … Portugal’s 10-year bond yield shot above 8 percent and its stock market slumped 5 percent on fears a snap election could derail Lisbon’s exit next year from a bailout by the European Union and International Monetary Fund. …”
How have the options markets and related implied volatility indexes reacted to this news? As shown in the table below, over the past two days the VXEEM Index rose 20%, OVX Index jumped 15.9%, but the VIX Index actually fell 1%. In recent days implied volatility for emerging markets (as reflected by VXEEM) was more heavily impacted than implied volatility for developed markets (as reflected by VIX, VSTOXX, and the new VXEFA Index).
FUTURES AND OPTIONS ON VOLATILITY INDEXES
If you have a view as to where the volatility indexes might go in the future, or want to use volatility products for diversification purposes, futures and options now are offered on the VXEEM, OVX, VIX and other volatility indexes. In the first half of 2013, the VIX options had an average daily volume of 588,897, and total contract volume of 73,023,288 (48,344,429 calls and 24,678,859 puts). As shown in the chart below, VIX options have had volume growth in every year since their launch in 2006.