Timeline of Listed Volatility Futures

Update: The timeline has last been updated on Jan 15th, 2013

Right now there are only two indexes with listed volatility instruments - VIX and VSTOXX. There are talks, mainly press-releases from different exchanges about plans to list futures on local vol indexes (VKOSPI futures, India VIX futures, Australian VIX futures, Japanese VIX futures), however I think we're a very long way from seeing another successful volatility instrument. The reason is that historically there just has not been enough interest from traders - just look at this timeline of volatility futures:

• Jan 1998 DTB lists VOLAX futures on DAX
• Dec 1998 DTB delists VOLAX futures on DAX
• Mar 2004 CBOE lists futures on VIX
• Apr 2005 CBOE lists DJIA volatility futures
• Sep 2005 Eurex lists futures on VDAX, VSMI, and VSTOXX
• Feb 2006 CBOE lists VIX options
• Jul 2007 CBOE lists Nasdaq and Russell 2000 volatility futures
• Mar 2009 CBOE lists mini-VIX futures
• Jun 2009 Eurex lists MINI-VSTOXX futures 
• Jul 2009 Eurex delists VDAX, VSTOXX, VSMI futures
• Aug 2009 CBOE delists DJIA volatility futures
• Feb 2009 CBOE delists Nasdaq volatility futures
• Feb 2010 CBOE delists Russell 2000 volatility futures
• Mar 2010 Eurex lists options on VSTOXX
• Mar 2011 CBOE lists futures on GVZ (Gold)
• Mar 2011 CBOE lists options on GVZ (Gold)
• Jun 2011 RTS lists futures on RTSVX
• Jan 2012 CBOE lists futures and options on VXEEM (Emerging Markets)
• Feb 2012 CBOE lists futures VXEW (Brazil)
• Mar 2012 CBOE lists options on VXEW (Brazil) and futures on OVX (Oil)
• Apr 2012 CBOE lists options on OVX (Oil)
• Feb 2012 HKFE lists futures on VHSI
• Feb 2012 Osaka lists futures on VNKY

Week in Volatility

It was a bumpy ride for the VIX (and my portfolio) this week. The index rose above 28 on Tue and Wed, and fell below 25 on Fri. The week to week change in the equity and volatility indexes was completely overshadowed by intraweek action. VIX and VSTOXX futures declined in the near term, however the long-term levels were unchanged. With volatility rising and falling so much in one week, it seems to be a good time to rethink the forecasts. My model still shows Sep expiration forecast of 25.36 (higher than my previous forecast) with volatility of 3.85 (lower than my previous forecast).

Simple Trick to Convert Volatility

As I am sure all of you know Russia has began a full scale war against my home country Ukraine. Please make no mistake - Putin's goal in not to stop the expansion of NATO, not to install puppet government, and certainly not to bring peace. The goal is genocide of Ukrainian people. 

When Ukraine was under Russian communist occupation, Russians started off with killing of political leaders, repression of Ukrainian language and traditions - including prohibiting people from celebrating Christmas, and then wide-scale murder of millions of Ukrainian civilians. We already starting to see this today:  Russians are targeting civilian hospitals, kindergartens, and bomb shelters.

If you are reading this make a phone call to your government representatives and ask to sanction Russian federation in absolutely any way possible, and provide military aid to Ukraine. Please just do this little thing to give us a chance to protect ourselves.

 

 

 

My boss came to me today with "how do I convert this monthly vol to annual?". This is by far not the first time someone asked me to convert x-period volatility to y-period volatility. If you're having trouble doing this, here is a simple trick to remember: figure out the multiplier as if scaling was linear, and take the square root of that multiplier. For example, returns scale linearly with time. If someone gives you a monthly returns to convert to annual, you would simply multiply it by 12. So, in the case of converting monthly volatility to annual, multiply it by √12. If someone gives you annual returns and asks you to calculate daily returns you would divide it by 252. To convert annual volatility to daily volatility divide it by √252.

P.S. √252≈16, which is the reason for "rule of 16" for converting daily to annual volatility.
P.P.S. To convert:

Daily to weekly	->	multiply by √5
Daily to monthly	->	multiply by √21
Daily to quarterly	->	multiply by √63
Daily to annual	->	multiply by √252
Weekly to daily	->	divide by √5
Weekly to monthly	->	multiply by √4
Weekly to quarterly	->	multiply by √12.5
Weekly to annual	->	multiply by √50
Monthly to daily	->	divide by √21
Monthly to weekly	->	divide by √4
Monthly to quarterly	->	multiply by √3
Monthly to annual	->	multiply by √12
Quarterly to daily	->	divide by √63
Quarterly to weekly	->	divide by √12.5
Quarterly to monthly	->	divide by √3
Quarterly to annual	->	multiply by √4
Annual to daily	->	divide by √252
Annual to weekly	->	divide by √50
Annual to monthly	->	divide by √12
Annual to quarterly	->	divide by √4

VIX Trading Strategies from Jeremy Wien

Mr Wien published two excellent articles on VIX strategies. Here is the presentation he did for CBOE last April, and here is an article he wrote for Active Trader magazine, published this May.

The strategies he recommends:

• Short straddle + hedge upside risk with OTM call
• 1x2 put spread
• Butterfly
• Bull spread + long call

Here are some illustrative charts; the discussion of the strategies in the articles is far better than what I can repeat here. The only thing that I can add here is that the first strategy is structurally similar to a fly, since downside risk in the VIX is minute compared with the upside.

Week in Volatility, Forecasts Review

This was a mixed week for volatility - the short term vol was all over the place, although mostly higher. Long-term vol was definitely on the upswing - the long-term futures being up about a third of a point. VSTOXX futures mostly rose, moving an average of 0.13 points. Overall volatility indexes around the world were down half of a point. 

Now, about a month ago I made a number of predictions about IWM based on its implied volatility; let's see how they worked out.

1 Prediction: volatility 2% per day, realized: 1.8% Implied volatility on indexes is usually higher than realized, but this month the difference is not huge. It is not unusual to see all implied risk measures to be higher than the realized. 

2. Prediction: daily range $2, realized: $1.48.

3. Prediction: monthly range $10.42, realized: $7.13. Monthly high prediction: $69.19, realized: $67.27. Monthly low prediction: $58.77, realized: $60.14. 

4. Maximum drawdown: $8.34, realized: $7.13.

Do these finding mean that the formulas are accurate enough to be used for trading decisions and quick assessment of risk? I think after applying proper implied/historical adjustment the formulas are very helpful, and that is how I use them in my own trading.  

VIX Expiration

$VRO settled at 24.82, only 2 cents away from my last-month forecast of 24.80, here. Although I wish I could attribute such amazing accuracy to my forecasting skills, luck has played a significant factor. My forecast for September is 24.97 with standard deviation of 5.45, vs market's forecast of 29.44 with standard deviation of 7.45. I have a lot of concern regarding skew trades into Sep, and especially Oct expirations, so plan to proceed more cautiously. Good luck traders, and hedge your deltas!

AlphaShares China Volatility Index

There is a (relatively) new volatility index, that I think does not get as much attention as it should - the AlphaShares China Volatility Index, ASCNCHIX, or CHIX. I won't pretend to be an economist, but Chinese volatility is an important factor to consider for all traders and investors. The index is also interesting because it is actually composed of two underlying indexes.

The description on Bloomberg website here is actually somewhat misleading: "The AlphaShares Chinese Volatility Index measures the implied volatility of options on the FTSE Xinhua China 25 and Hang Seng (HSI) indices." In a private email Alphashares representative explained that the index is an equal-weighted average of  ATM volatilities of FXI ETF (US) and HSI (HK) .

Over the last five years VIX and CHIX moved in tandem, with CHIX about 1.5 times the VIX. However in the last 3 months this ratio fell below 1, with CHIX trading below VIX.