Over the past two months, there has been increased interest in: (1) portfolio protection strategies (2) learning more about prudent uses of VIX® futures and options, and (3) following brackets. To tie all these topics together, below is a new bracket with 8 benchmark indexes that shows that two indexes that buy VIX call options (LOVOL and VXTH) had the lowest standard deviations over the past decade.

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DESCRIPTIONS OF FOUR CBOE BENCHMARK INDEXES THAT USE VIX FUTURES AND/OR VIX OPTIONS

While the VIX Index itself is a gauge and is not investable, Cboe offers the following VIX-related benchmark indexes (all shown in image above) that are designed to serve as benchmarks for hypothetical investable performance over more than a decade.

  • Cboe Low Volatility Index (LOVOL) is a 40% / 60% blend of the CBOE S&P 500 BuyWrite Index (BXM) and CBOE VIX Tail Hedge Index (VXTH); the portfolio overlays long VIX calls and short S&P 500 calls over an investment in S&P 500 stocks. www.cboe.com/LOVOL
  • Cboe VIX Premium Strategy Index (VPD) overlays a sequence of short one-month VIX futures on a money market account; the short VIX futures positions are held until expiration and new VIX futures are then sold. www.cboe.com/VPD
  • Cboe Capped VIX Premium Strategy Index (VPN) tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option; the short VIX futures position is capped with long VIX calls struck about 25 points higher than the VIX futures price. www.cboe.com/VPN
  • Cboe VIX Tail Hedge Index (VXTH) buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index® (VIX). www.cboe.com/VXTH

LINKS TO RESEARCH PAPERS ON USE OF VIX FUTURES AND VIX OPTIONS

MORE INFORMATION

More information about benchmark indexes and related studies is at www.cboe.com/benchmarks

More analysis of Cboe benchmark indexes that use VIX futures or VIX options will be provided in upcoming Cboe blogs at www.cboe.com/blogs.