Aussie VIX Trading Kicks Off Next Monday

Back in early June of this year I had the honor and privilege of visiting the Australian Securities Exchange (ASX) and discussing volatility indexes with a wide variety of market participants.  I met with traders and investors in both Sydney and Melbourne over the course of a week.  That trip helped lay the ground for introduction of futures trading on the S&P/ASX 200 VIX (A-VIX) Index.  The countdown to launching volatility trading at the ASX is underway and next Monday October 21st will be the first day of trading for A-VIX futures.

A-VIX uses the same calculation methodology as the well-known CBOE Volatility Index (VIX).   A-VIX also has a historical relationship with the underlying S&P/ASX 200 that is very similar to the relationship between the S&P 500 and VIX.  This first chart shows the price action of S&P/ASX 200 and A-VIX from January 2013 through the middle of October 2013.

A-VIX Chart

 

That inverse relationship that volatility traders are keenly aware of with respect to the S&P 500 versus VIX shows up in a similar fashion when considering the Australian version of the underlying and volatility markets.  There is data going back to the first day of 2008 for A-VIX so I did a little analysis and put together the table below that breaks out A-VIX activity and the correlation between A-VIX and the S&P/ASX 200 by year from 2008 through year to date 2013.

A-VIX Correl

 

Note the correlation is consistently negative between the two indexes.  This is common for just about any equity index market relative to the corresponding volatility index.  A-VIX futures trading will allow all levels of investors the ability to gain exposure to implied volatility as priced in by options on the S&P/ASX 200 index.  A little more on the A-VIX can be found at the link below –

http://www.asx.com.au/education/investor-update-newsletter/201310-an-index-that-looks-forward-not-back.htm

I for one am looking forward to the launch of A-VIX futures trading and tracking the progress of this new method to gain exposure to market volatility.

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

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