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Trading VIX Derivatives: Trading and Hedging Strategies Using VIX Futures, Options, and Exchange-Traded Notes by Russell Rhoads

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Chapter 8

Volatility Indexes on Alternative Assets

In addition to volatility indexes on a variety of equity market indexes, a handful of indexes are based on the implied volatility of other assets. As using volatility as an asset class continues to gain market acceptance, the result should be an expansion of trading in derivatives based on these indexes.

Currently, the CBOE tracks volatility on gold, oil, and the euro based on option trading on securities that trade these respective markets. Each of these markets has unique volatility characteristics that will make derivative products on their volatility levels unique in their own right.

Through an agreement with the CME Group, the CBOE has licensed its VIX methodology for use in the development of volatility-related indexes based on CME Group products. Volatility indexes on oil, gold, soybeans, and corn have been developed. These indexes are based on options on futures on each of these commodities. The long-term plan for these indexes calls for introduction of derivative trading at the exchange based on these indexes. Introduction of oil and gold volatility futures by the CME Group was the first step toward an expansion of volatility-related derivatives. Finally, the CME Group has also started work toward an alternative currency volatility measure known as indexes on realized volatility. This chapter finishes with a description of these realized volatility indexes.

CBOE GOLD VOLATILITY INDEX

The CBOE Gold Volatility Index® trades ...

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