I a index funds s&p volatility index?
The primary way to trade the VIX is to buy exchange-traded funds (ETFs) and exchange-traded notes (ETNs) tied to the VIX itself. ETFs and ETNs related to the VIX include the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the ProShares Short VIX Short-Term Futures ETF (SVXY).
The primary way to trade the VIX is to buy exchange-traded funds (ETFs) and exchange-traded notes (ETNs) tied to the VIX itself. ETFs and ETNs related to the VIX include the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the ProShares Short VIX Short-Term Futures ETF (SVXY).
Simply put, VIX measures the expectation of stock-market volatility as communicated by options prices. Rather than measuring “realized” or historical volatility, VIX projects “implied” or expected volatility–specifically 30 days in the future–by measuring changes in the prices of options on the S&P 500.
| Closing Price: | $4,864.60 |
|---|---|
| Average Week Vol: | 11.34% |
| Average Month Vol: | 11.28% |
| 1 Month Pred: | 12.29% |
| Min Vol: | 6.98% |
Some of the most commonly used tools to gauge relative levels of volatility are the Cboe Volatility Index (VIX), the average true range (ATR), and Bollinger Bands®.
Simply referred to as 'the VIX', it is a market index that measures the implied volatility of the S&P 500 Index (SPX) – the core index for U.S. equities.
Like all indices, the VIX cannot be bought directly. However, the VIX can be traded through futures contracts and exchange traded funds (ETFs) and exchange traded notes (ETNs) that own these futures contracts.
The VIX rises as a result of increased demand for puts but also swells because the put options' demand increase will cause the implied volatility to rise. Like any time of scarcity for any product, the price will move higher because demand drastically outpaces supply.
Contrarian investors — those who look for market opportunities by going against conventional thinking—consider a low reading on the VIX to be a bearish signal, indicating market complacency that may spell bad news ahead, while a high VIX reading is believed by some to be a bullish signal.
According to the rule of 16, if the VIX is trading at 16, then the SPX is estimated to see average daily moves up or down of 1% (because 16/16 = 1). If the VIX is at 24, the daily moves might be around 1.5%, and at 32, the rule of 16 says the SPX might see 2% daily moves.
What is the average volatility of the S&P 500?
Volatility can be measured using the standard deviation, which signals how tightly the price of a stock is grouped around the mean or moving average (MA). The average volatility of the S&P 500 (annualized standard deviation at 18.1%).
The largest Volatility ETF is the Simplify Volatility Premium ETF SVOL with $605.34M in assets. In the last trailing year, the best-performing Volatility ETF was SVIX at 129.49%. The most recent ETF launched in the Volatility space was the Volatility Shares -1x Short VIX Mid-Term Futures Strategy ETF ZIVB on 04/19/23.
| Symbol | Volatility | Price |
|---|---|---|
| CRGE D | 238.55% | 0.2270 USD |
| MIMO D | 130.77% | 0.0854 USD |
| MPU D | 119.05% | 2.28 USD |
| BCEL D | 118.79% | 0.3564 USD |
The VIX, formally known as the Chicago Board Options Exchange (CBOE) Volatility Index, measures how much volatility professional investors think the S&P 500 index will experience over the next 30 days.
In finance, volatility (usually denoted by "σ") is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns.
You can use the VIX as part of a trading strategy as it can give indications of whether the S&P 500, and stock market in general, is going to reverse from its current trend. As mentioned above, when the VIX hits highs, it's often seen as a time to buy the market, and when it makes lows, it's seen as a bullish signal.
Rolling Volatility (One Year)
The one-year rolling volatility, calculated by annualizing the standard deviation of daily returns, has shown a slight elevation in the Nasdaq-100 compared to the S&P 500. On average, it has been just 2.6% higher over the period spanning from December 31, 2007, to September 30, 2023.
How Does an S&P 500 ETF Differ from an S&P 500 Index Fund? Both an index ETF and an index mutual fund passively track the S&P 500 index in order to duplicate its return. ETFs trade like stocks on exchanges, while mutual funds can only be traded at the end of each trading day.
Fidelity® 500 Index Fund is a diversified domestic large-cap equity strategy that seeks to closely track the returns and characteristics of the S&P 500® index. The S&P 500® is a market-capitalization-weighted index designed to measure the performance of 500 large-cap U.S. companies.
Investors cannot buy VIX directly, as it is merely an index used for market analysis. However, there are a wide array of exchange-traded funds, or ETFs, and exchange-traded notes — or ETNs — tied to the VIX index that are available for purchase.
Which volatility index is best to trade?
- Bollinger Bands.
- ATR – Average True Range Indicator.
- VIX – Volatility Index.
- Keltner Channel Indicator.
- Donchian Channel Indicator.
- Chaikin Volatility Indicator.
- Twiggs Volatility Indicator.
- RVI – Relative Volatility Index.
VXX is an exchange-traded note (ETN) based on VIX futures. Because these futures need to be rolled to keep VXX alive, this ETN experiences profound time decay via 'contango'. VXX vastly underperforms the VIX for this reason. VIX is an index composed of S&P 500 options so does not, therefore, experience contango.
Actual VIX Value Range
In reality, VIX over 100 would be very unusual. In fact, the VIX index has never been above 100 any time during its available data history (since 1990). The highest VIX close ever recorded was 82.69 on 16 March 2020 when the covid pandemic started.
There is a strong negative correlation between the VIX and stock market returns. If the VIX moves up, it is likely that the S&P 500 is falling in price. If the volatility index declines, then the S&P 500 is likely to be experiencing stability. The VIX is thought to predict tops and bottoms in the SPX.
We examine the efficacy of the VIX as a predictor of 30-day forward S&P 500 volatility. We find that its accuracy hovers between 20% and 25%, depending on sampling period. An alternative framework, built on asymptotic distribution theory (AVE), predicts this volatility with an accuracy between 90% to 95%.
