Connors Research Traders Journal (Volume 6): New Volatility Index From The CBOE
Good news. The CBOE just launched a new 1-year Volatility Index VIX1Y. This is significant and I’ll explain why in a minute.
First, to make sure you know what the CBOE now offers and what it means, I’ll walk you through their five major Volatility Indexes.
1. VXST – 9-day Implied Volatility. Within VXST are two lesser known yet important components; VSTN (5-day Implied Volatility), and VSTF (13-day Implied Volatility).
2. VIX – 30-day Implied Volatility and the most commonly used Index.
3. VIX3M – (formerly VXV) – 3-month Implied Volatility Index.
4. VXMT – 6-month Volatility Index.
5. VIX1Y – The new 1-year Implied Volatility Index.
We have done extensive work publishing original VIX research starting in 1995. Now with more than two decades of experience combined with a tremendous amount of additional data, plus these five Volatility Indexes being available, our research is robust and continuing to grow.
Over the next month or so I’ll provide you with volatility trading tutorials though the Connors Research Traders Journal. These tutorials will teach you the intricacies of each Index and they’ll also provide you with knowledge for you to be able to apply to your trading.
A few notes:
1. Here is the CBOE page with the information on the new 1-year Volatility Index:
https://www.cboe.com/blogs/
2. Here is an additional page listing all the volatility-related Indexes the CBOE has launched over the years. Please let me know at lconnors@cg3.com if there are any specific indexes you have an interest in:
https://www.cboe.com/index/
3. Keeping the five Volatility Indexes on your screen and watching them daily is a worthwhile exercise. Implied Volatility gets into the guts of how major market participants are anticipating future events. Contango and Backwardation play key roles in understanding fear and greed. These emotions are inherent in the market place and no computer can overcome emotions, especially at extremes. This is where substantial edges come from.
4. As much as the majority of mainstream Wall Street focuses on the VIX, we have seen at times larger historical edges occurring from the longer dated volatility indexes. Few people are aware of this.
5. More to number 4; comparing the Volatilty Indexes to each other (known as the “term structure”), has led us and others to building strategies with consistent test results and high Sharpe Ratios. With the new 1-year Volatility Index these edges may potentially become even larger.
Make tracking these five indexes part of your daily routine! You’ll be able to read the minds of the major markets players with these indexes better than with any other index or oscillator out there.
Enjoy your trading!