This week Cboe is launching a month-long celebration of the 25th anniversary of the introduction of the Cboe Volatility Index® (VIX® Index), which Cboe began publishing in April 1993.
The creation of the VIX Index is one of the most significant innovations of the modern financial marketplace. Over the last 25 years, the VIX Index has grown to become the world’s accepted measure of market volatility, a gauge that is accessed day and night by investors worldwide. Below are seven charts that provide some key points to know about the VIX Index, VIX futures and VIX options.
VIX INDEX – AVERAGE OF 19.4 AND MEDIAN OF 17.5
As shown in the first chart below, an analysis of 7,117 daily closing values of the VIX Index shows that –
- the maximum daily close was 80.86 on November 20, 2008;
- the average daily close was 19.4;
- the median daily close was 17.5; and
- the minimum daily close was 9.14 on November 3, 2017.
VIX FUTURES INTRODUCED IN 2004
Futures on the VIX Index were introduced in 2004, and average daily volume for VIX futures has grown from 17,469 in 2010 to more than 360,000 in the first quarter of 2018.
VIX OPTIONS INTRODUCED IN 2006
SEC-regulated options on the VIX Index were introduced in 2006, and average daily volume for VIX options has grown from 247,826 in 2010 to more than 1.06 million in the first quarter of 2018.
DIVERSIFICATION POTENTIAL AND MORE EXTREME CORRELATIONS IN 2008
As shown in the tables with the correlations of weekly returns below –
- Over the past 25 years the VIX Index had negative correlations vs. the S&P 500 Index (-0.70), MSCI EAFE Index (-0.52), and S&P GSCI Index (-0.18) (for commodities);
- In 2008 the VIX Index had even more negative correlations vs. the S&P 500 Index (-0.82), MSCI EAFE Index (-0.72), and S&P GSCI Index (-0.24);
- In 2008 the S&P 500 Index (SPX) had higher correlations vs. the Russell 2000® Index (0.94), MSCI EAFE® Index (0.86) and S&P GSCI Index (0.44).
Thus the correlations among stock indexes rose in 2008 (and prompted some investors to question whether traditional diversification principles continued to work in 2008), but the correlations of the VIX to stock indexes became even more negative in 2008.
All four of the charts below show price movements that have spurred some investors to explore the possibility of using VIX-related products for diversification and portfolio risk management.
DATES WITH BIG DROPS IN SPX OFTEN SAW EVEN BIGGER GAINS FOR VIX INDEX AND VIX FUTURES
As shown in the next chart, on the 26 days that the SPX Index fell by more than 4% (in the period from Jan. 2005 to March 2018), the average % changes were down 5.5% for the S&P 500 Index, up 15.8% for near-term VIX futures, and up 22.7% for the VIX Index. The VIX Index itself is not investable, and investors can explore the unique price movements of the VIX futures and VIX options.
BIGGEST ONE-DAY MOVES FOR VIX INDEX
Since January 1990 the VIX Index rose more than 25% on 45 days, and fell more than 25% on 4 days. The biggest one-day move in percentage terms was a recent 115.6% increase on February 5, 2018.
BIGGEST ONE-MONTH MOVES FOR VIX INDEX
Since January 1990 the VIX Index rose more than 35% in 22 months, and fell more than 35% in two months. The biggest one-month move in percentage terms was a 134.6% increase in August 2015.
To learn more about the VIX Index and use of VIX futures and VIX options, please visit these webpages –