The Kentucky (and Cinderellas) of Recent Volatility Plays

The 'Elite 8' of tradable volatility indexes, per CBOE Options Hub

by Adam Warner

Published on Mar 24, 2015 at 9:15 AM
Updated on Jun 24, 2020 at 10:16 AM

Well, an apology for my bracket picks. I still say Villanova is going places this year!

But hey, we do options here most of the time. The volatility world is very CBOE Volatility Index (VIX)-centric, and I'm as guilty as anyone. There are many other volatility indices out there, including lots of tradable ones. Matt Moran of CBOE Options Hub highlights some of the most "volatile" in bracket form:

8 Tradable Volatility Indexes

And the winner is? CBOE Short-Term Volatility Index (VXST)!

That makes some sense. It's exactly the VIX, except that it proxies a nine-day option as opposed to a 30-day option. As such, it's hypersensitive to sudden moves in S&P 500 Index (SPX) and/or fear of sudden moves. It has the potential to pop exponentially more than VIX itself.

VIX itself got into a tough bracket. It comes in second with a 78.3% one-week pop, but unfortunately it lost to VXST in the Elite 8. It's kind of like if you threw Arizona into Kentucky's bracket.

Up next? CBOE Brazil ETF Volatility Index (VXEWZ), which made it out of the "foreign markets" bracket all the way to the finals. It proxies volatility on iShares MSCI Brazil Index (ETF) (EWZ), which is the Brazilian exchange-traded fund (ETF). This is less a "volatility" story, though, than a "Brazil market acts horrendous" story. It lost about 45% of its value from the October highs to the lows (so far) a little over a week ago. But the whole idea here is that CBOE has tradable products to hedge against ugliness like that, and VXEWZ does fit that bill.

And in fourth place we find CBOE Emerging Markets ETF Volatility Index (VXEEM), which also had a tough Elite 8 matchup. Every time I see that name, I think Akeem from "Coming to America." In real life it is volatility in iShares MSCI Emerging Markets Index (ETF) (EEM), the emerging markets ETF. We had a couple of spells of serious ugliness there in 2014. In fact, it was roughly a year back (plus and minus a month or two) that this sector was the reason our markets were doomed.

Perhaps most interesting is that oil volatility -- per CBOE Crude Oil Volatility Index (OVX) -- didn't perform better. I know it's a bit of recency effect in my mind here, but if you gave me this list and told me to rank the volatility moves by product in the last four years, I would have guessed OVX came in second to Kentucky … I mean VXST. I certainly expected that it would have outdone VIX given its historical outperformance versus VIX last autumn. Then again, the story was more one of the persistence of the volatility pop, and this bracket study looks more at compressed lifts.

My big conclusion is I might have picked the volatility brackets worse than the NCAA's, which is really bad considering it's in hindsight.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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