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CBOE VIX Tail Hedge Index (VXTH)  
VXTH 141.52 0.00
VIX 22.82 -2.28
VIX/M2 26.39 -1.81
VIX/N2 26.76 -1.39
VIX/Q2 27.22 -1.18
Delayed Quotes
   
Prices for 3 VIX
Futures are above

CBOE VIX Tail Hedge Index (VXTH)

CBOE is introducing a benchmark index designed to cope with extreme downward movements in stock indexes -- the CBOE VIX Tail Hedge IndexSM (VXTHSM).

The VXTH Index tracks the performance of a hypothetical portfolio that -

  • Buys and holds a portfolio of stocks designed to replicate the performance of the S&P 500® index (the total return index, with dividends reinvested), and
  • Buys one-month 30-delta call options on the CBOE Volatility Index®(VIX)®. New VIX calls are purchased monthly, a procedure known as the "roll." The weight of the VIX calls in the portfolio varies at each roll depending on the perceived likelihood that a "black swan" event could occur in the near future.

The power of the VXTH index comes from the exceptionally high returns garnered by VIX calls in times of steep stock market declines. This means few VIX calls need to be purchased. To further increase efficiency, the VXTH is carefully calibrated: the weight of the VIX calls in the portfolio varies at each roll depending on the likelihood that a "black swan" event is about to occur. This has the effect of reducing hedging costs and monetizing VIX option profits when extreme volatility levels are reached. This monetizing of the VIX option position in turn means that overall capital can be preserved.




Bibliography

  • Clary, Isabelle. "Managers Turning to Futures, Options to Counter Volatility." Pensions & Investments (March 31, 2008).
  • Cui, Carolyn. "Commodities Zig; Stocks Do, Too; Parallel Drops Undermine Oil and Grains In Their Roles as Alternative Investments." Wall Street Journal (Oct 17, 2008). pg. C.1.
  • Farrell, Christopher. "Protecting Your Nest Egg In Volatile Times." Business Week (Oct 27, 2008) pg. 73.
  • Farrell, Maureen. "Protect Your Tail." Forbes (June 8, 2011).
  • Lauricella, Tom. "No Diversification: How Bond Funds Let Investors Down."
  • Wall Street Journal (June 1, 2009) pg. R.1.
  • Leibowitz, Martin L. and Anthony Bova. "Diversification Performance and Stress-Betas." The Journal of Portfolio Management (Spring 2009).
  • Lim, Paul. "25 Years of Conventional Wisdom, Down the Drain." New York Times (Jan 4, 2009). pg. BU.4.
  • Markowitz, Harry. "Crisis Mode: Modern Portfolio Theory Under Pressure." The Investment Professional (Spring 2009).
  • MarksJarvis, Gail. "Diversification Not Always Insulation." Chicago Tribune (Feb 1, 2009).
  • McGee, Suzanne. "The Perfect Alternative; In A Bear Market, Finding Assets With A Reliably Negative Correlation To Stocks And Bonds Is All The More Crucial-And All The More Difficult." Financial Planning (Dec. 2008) pg. 60.
  • "PIMCO Sells Black Swan Protection." Pensions & Investments (July 20, 2010).
  • Scism, Leslie, and Daisy Maxey. "No Place to Hide; Investors Have Seen Even 'Safe' Stock and Bond Funds get Hammered; No Wonder They're So Spooked." Wall Street Journal (Nov 3, 2008) pg. R.1.
  • Shinkle, Kirk. "Why Plain-Vanilla Portfolios Fall Short; Today, Diversification Means More than Just Mixing Stocks, Bonds, and Cash." U.S. News & World Report (Jul 1, 2009) pg. 70.
  • Szado, Edward. "VIX Futures and Options: A Case Study of Portfolio Diversification During the 2008 Financial Crisis." The Journal of Alternative Investments (Fall 2009) pp. 68 - 85.
  • Whaley, Robert E. "Understanding VIX." (2008).



Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information on this website is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in the website information. No statement within the website should be construed as a recommendation to buy or sell a security or to provide investment advice. The inclusion of non-CBOE advertisements on the website should not be construed as an endorsement or an indication of the value of any product, service, or website. The Terms and Conditions govern use of this website and use of this website will be deemed acceptance of those Terms and Conditions.