Boost Your Trading Profits with These 18 Essential Volatility Indexes
If you’ve spent time in the trading world, you know that success comes down to more than just market timing—it’s about understanding the full scope of the market’s behavior. That’s where volatility indices come into play. These aren’t just technical jargon; these are crucial metrics developed by the Chicago Board Options Exchange (CBOE).
Why should you care? Because these indices give you a data-driven snapshot of market sentiment across a wide range of assets. They take the guesswork out of understanding market risk, providing quantifiable measures of expected volatility in stocks, commodities, and even currencies.
Larry Connors, the founder of TradingMarkets, has written extensively on the VIX since 1995. He’s also published a number of quantified strategies in trading derivatives of the volatility indexes including his VXX strategies in his book Buy The Fear, The Sell The Greed.
We’re about to dive into 18 of these indices. We’ll go beyond the surface-level explanations and dig into the core of how these volatility metrics can impact your trading decisions. This isn’t just information; it’s a strategy.
If you’ve spent time in the trading world, you know that success comes down to more than just market timing—it’s about understanding the full scope of the market’s behavior. That’s where volatility indices come into play. These aren’t just technical jargon; these are crucial metrics developed by the Chicago Board Options Exchange (CBOE).
Why should you care? Because these indices give you a data-driven snapshot of market sentiment across a wide range of assets. They take the guesswork out of understanding market risk, providing quantifiable measures of expected volatility in stocks, commodities, and even currencies.
Larry Connors, the founder of TradingMarkets, has written extensively on the VIX since 1995. He’s also published a number of quantified strategies in trading derivatives of the volatility indexes including his VXX strategies in his book Buy The Fear, The Sell The Greed.
We’re about to dive into 26 of these indices. We’ll go beyond the surface-level explanations and dig into the core of how these volatility metrics can impact your trading decisions. This isn’t just information; it’s a strategy.
The VIX and 17 Additional Volatility Indexes: Your Essential Tool for Comprehensive Market Analysis
The VIX and 25 Additional Volatility Indexes: Your Essential Tool for Comprehensive Market Analysis
US Stock Market Volatility Indexes:
US Stock Market Volatility Indexes:
1. VIX (CBOE Volatility Index)
The VIX is often referred to as the “fear gauge” of the stock market. It measures the market’s expectation of future volatility in the S&P 500 index over the next 30 days. The VIX is calculated using the implied volatilities of a wide range of S&P 500 index options.
When the VIX is high, it usually means that investors and portfolio managers are uncertain and buying options to hedge their portfolios, which drives up option prices and, consequently, the VIX. A low VIX generally suggests a market where investors feel secure. Understanding the VIX can help you gauge the risk and fear levels in the broader market.
One of the best books written on trading the VIX was written by Russell Rhoads. Russell was the former Director of Education of the CBOE. His book The VIX Traders Handbook is a must-read if you’re interested in learning how to trade the Vix and Its derivative product.
2. VVIX (VIX of VIX)
The VVIX measures the volatility of the VIX index itself. In simpler terms, it’s a measure of how much the market expects the VIX to fluctuate. A high VVIX value means that traders expect significant changes in the VIX, which usually coincides with increased market turbulence. VVIX can act as an additional layer to your understanding of market volatility. If both VIX and VVIX are high, it could indicate a particularly uncertain period ahead.
3. VIXMO (VIX Month-Only)
The VIXMO is a specialized version of the VIX that focuses on a single month’s worth of S&P 500 index options. While the traditional VIX aims to provide a 30-day forward-looking volatility measure, VIXMO offers a more immediate view. This can be useful for traders with shorter-term investment horizons or those who want to hedge against specific events occurring within a single month.
4. VIX3M (CBOE 3-Month Volatility Index)
This index provides a measure of the market’s expected volatility over a 3-month period. Like the VIX, it’s based on S&P 500 index options. The VIX3M is useful for traders who are interested in a longer time horizon than the VIX provides but shorter than what long-term investment vehicles might require. The VIX3M can be used to hedge against medium-term volatility or to speculate on it.
5. VXST (CBOE Short-Term Volatility Index)
The VXST measures the 9-day expected volatility of the S&P 500, providing an even shorter-term view than the VIX. This can be particularly useful for traders looking to hedge against or speculate on very short-term market events. The VXST is sensitive to immediate market news and can change rapidly, making it a tool for more advanced traders who can monitor the market closely.
6. VXV (CBOE 3-Month Volatility Index)
The VXV measures the expected volatility of the S&P 500 over a 3-month period. While similar to VIX3M, VXV is more focused on a fixed 93-day period. This can be useful for traders who want a more standardized time frame for medium-term market volatility, allowing for strategies that are specific to this time horizon.
7. VXMT (CBOE Mid-Term Volatility Index)
VXMT focuses on the 6-month expected volatility of the S&P 500. This is useful for traders or investors who are looking at a longer-term perspective but still want to account for market risk. It can be an excellent tool for hedging half-year investment strategies or speculating on long-term market sentiment.
8. VXD (Dow Jones Volatility Index)
The VXD measures the expected volatility of the Dow Jones Industrial Average (DJIA), a stock index composed of 30 large American companies. If you are invested in or following companies on the DJIA, the VXD can provide valuable insight into market sentiment surrounding these large-cap stocks.
9. VXN (Nasdaq 100 Volatility Index)
VXN tracks the expected volatility of the Nasdaq 100, an index of the 100 largest non-financial companies listed on the Nasdaq stock exchange. This index is particularly useful for traders interested in the tech sector, as it allows them to gauge market sentiment and risk levels specific to these companies.
10. RVX (Russell 2000 Volatility Index)
RVX measures the expected volatility of the Russell 2000 Index, which includes small-cap stocks. This index is useful for traders focusing on smaller companies, offering a way to gauge market sentiment and risk in this specific sector.
1. VIX (CBOE Volatility Index)
The VIX is often referred to as the “fear gauge” of the stock market. It measures the market’s expectation of future volatility in the S&P 500 index over the next 30 days. The VIX is calculated using the implied volatilities of a wide range of S&P 500 index options.
When the VIX is high, it usually means that investors and portfolio managers are uncertain and buying options to hedge their portfolios, which drives up option prices and, consequently, the VIX. A low VIX generally suggests a market where investors feel secure. Understanding the VIX can help you gauge the risk and fear levels in the broader market.
One of the best books written on trading the VIX was written by Russell Rhoads. Russell was the former Director of Education of the CBOE. His book The VIX Traders Handbook is a must-read if you’re interested in learning how to trade the Vix and Its derivative product.
2. VVIX (VIX of VIX)
The VVIX measures the volatility of the VIX index itself. In simpler terms, it’s a measure of how much the market expects the VIX to fluctuate. A high VVIX value means that traders expect significant changes in the VIX, which usually coincides with increased market turbulence. VVIX can act as an additional layer to your understanding of market volatility. If both VIX and VVIX are high, it could indicate a particularly uncertain period ahead.
3. VIXMO (VIX Month-Only)
The VIXMO is a specialized version of the VIX that focuses on a single month’s worth of S&P 500 index options. While the traditional VIX aims to provide a 30-day forward-looking volatility measure, VIXMO offers a more immediate view. This can be useful for traders with shorter-term investment horizons or those who want to hedge against specific events occurring within a single month.
4. VIX3M (CBOE 3-Month Volatility Index)
This index provides a measure of the market’s expected volatility over a 3-month period. Like the VIX, it’s based on S&P 500 index options. The VIX3M is useful for traders who are interested in a longer time horizon than the VIX provides but shorter than what long-term investment vehicles might require. The VIX3M can be used to hedge against medium-term volatility or to speculate on it.
5. VXST (CBOE Short-Term Volatility Index)
The VXST measures the 9-day expected volatility of the S&P 500, providing an even shorter-term view than the VIX. This can be particularly useful for traders looking to hedge against or speculate on very short-term market events. The VXST is sensitive to immediate market news and can change rapidly, making it a tool for more advanced traders who can monitor the market closely.
6. VXV (CBOE 3-Month Volatility Index)
The VXV measures the expected volatility of the S&P 500 over a 3-month period. While similar to VIX3M, VXV is more focused on a fixed 93-day period. This can be useful for traders who want a more standardized time frame for medium-term market volatility, allowing for strategies that are specific to this time horizon.
7. VXMT (CBOE Mid-Term Volatility Index)
VXMT focuses on the 6-month expected volatility of the S&P 500. This is useful for traders or investors who are looking at a longer-term perspective but still want to account for market risk. It can be an excellent tool for hedging half-year investment strategies or speculating on long-term market sentiment.
8. VXD (Dow Jones Volatility Index)
The VXD measures the expected volatility of the Dow Jones Industrial Average (DJIA), a stock index composed of 30 large American companies. If you are invested in or following companies on the DJIA, the VXD can provide valuable insight into market sentiment surrounding these large-cap stocks.
9. VXN (Nasdaq 100 Volatility Index)
VXN tracks the expected volatility of the Nasdaq 100, an index of the 100 largest non-financial companies listed on the Nasdaq stock exchange. This index is particularly useful for traders interested in the tech sector, as it allows them to gauge market sentiment and risk levels specific to these companies.
10. RVX (Russell 2000 Volatility Index)
RVX measures the expected volatility of the Russell 2000 Index, which includes small-cap stocks. This index is useful for traders focusing on smaller companies, offering a way to gauge market sentiment and risk in this specific sector.
Additional Volatility Indexes:
Additional Volatility Indexes:
11. OVX (Crude Oil Volatility Index)
The OVX measures the market’s expectation for future volatility in crude oil prices. This index can be particularly useful for traders or investors interested in the energy sector or commodities. It can also serve as a leading indicator of economic conditions, as oil prices often influence broader markets.
12. GVZ (Gold Volatility Index)
GVZ measures the expected volatility of gold prices. This index is valuable for anyone trading gold or gold-related securities. It’s also a useful gauge of investor sentiment towards a traditional “safe haven” asset during times of market uncertainty.
13. VXEEM (CBOE Emerging Markets ETF Volatility Index)
This index gauges the expected volatility in emerging markets by focusing on ETFs that track them. If you’re interested in diversifying your portfolio internationally, especially in less established markets, VXEEM can help you understand the risk involved.
14. VXAPL (Apple Volatility Index)
VXAPL focuses on Apple Inc. and measures the expected volatility of this specific stock. It’s useful for traders who have a significant investment in Apple or wish to speculate on its future price movements.
15. VXAZN (Amazon Volatility Index)
Like VXAPL but for Amazon, VXAZN is designed for traders interested in this e-commerce giant. Whether you’re speculating on Amazon’s stock or hedging an existing investment, this index provides valuable insights.
16. VXGOG (Google Volatility Index)
VXGOG measures the expected volatility of Alphabet Inc., Google’s parent company. If you’re particularly interested in tech stocks and have investments in Google, this index can be a useful tool.
17. VXIBM (IBM Volatility Index)
VXIBM focuses on IBM’s stock, providing a measure of its expected volatility. This is useful for traders who are focused on the tech sector but are looking at more traditional tech companies as opposed to newer startups.
18. VXGS (Goldman Sachs Volatility Index)
This index measures the expected volatility of Goldman Sachs’ stock. If you’re interested in the financial sector, VXGS can be a helpful tool for assessing market sentiment around this investment banking giant.
11. OVX (Crude Oil Volatility Index)
The OVX measures the market’s expectation for future volatility in crude oil prices. This index can be particularly useful for traders or investors interested in the energy sector or commodities. It can also serve as a leading indicator of economic conditions, as oil prices often influence broader markets.
12. GVZ (Gold Volatility Index)
GVZ measures the expected volatility of gold prices. This index is valuable for anyone trading gold or gold-related securities. It’s also a useful gauge of investor sentiment towards a traditional “safe haven” asset during times of market uncertainty.
13. VXEEM (CBOE Emerging Markets ETF Volatility Index)
This index gauges the expected volatility in emerging markets by focusing on ETFs that track them. If you’re interested in diversifying your portfolio internationally, especially in less established markets, VXEEM can help you understand the risk involved.
14. EVZ (EuroCurrency Volatility Index)
EVZ tracks the expected volatility of the Euro relative to the U.S. dollar. If you’re trading Euro-based assets or Forex, this index can be a valuable tool for understanding currency risk.
15. VXAPL (Apple Volatility Index)
VXAPL focuses on Apple Inc. and measures the expected volatility of this specific stock. It’s useful for traders who have a significant investment in Apple or wish to speculate on its future price movements.
16. VXAZN (Amazon Volatility Index)
Like VXAPL but for Amazon, VXAZN is designed for traders interested in this e-commerce giant. Whether you’re speculating on Amazon’s stock or hedging an existing investment, this index provides valuable insights.
17. VXGOG (Google Volatility Index)
VXGOG measures the expected volatility of Alphabet Inc., Google’s parent company. If you’re particularly interested in tech stocks and have investments in Google, this index can be a useful tool.
18. VXIBM (IBM Volatility Index)
VXIBM focuses on IBM’s stock, providing a measure of its expected volatility. This is useful for traders who are focused on the tech sector but are looking at more traditional tech companies as opposed to newer startups.
19. VXGS (Goldman Sachs Volatility Index)
This index measures the expected volatility of Goldman Sachs’ stock. If you’re interested in the financial sector, VXGS can be a helpful tool for assessing market sentiment around this investment banking giant.
Conclusion
Conclusion
As we’ve explored, volatility indexes are more than just statistical data; they’re a gateway to understanding the heartbeat of the financial markets. They empower you to not only anticipate market movements but also adapt your trading strategies for various asset classes and time horizons.
With this newfound knowledge of these 18 volatility indexes, you’re now armed with additional layers of insight to navigate the world of trading. These indexes are not just indicators; they’re catalysts that can propel your trading journey to new heights.
As we’ve explored, volatility indexes are more than just statistical data; they’re a gateway to understanding the heartbeat of the financial markets. They empower you to not only anticipate market movements but also adapt your trading strategies for various asset classes and time horizons.
With this newfound knowledge of these 26 volatility indexes, you’re now armed with additional layers of insight to navigate the world of trading. These indexes are not just indicators; they’re catalysts that can propel your trading journey to new heights.
Test Your Mastery: Volatility Indexes
Question 1: What is the VIX commonly referred to as?
Question 2: Which volatility index focuses on the expected volatility of the S&P 500 over a 3-month period?
Question 3: If both VIX and VVIX are high, what could it indicate?
Question 4: What does the RVX measure?
Question 5: Which index would be most useful for traders interested in the tech sector?
Question 1: What is the VIX commonly referred to as?
Question 2: Which volatility index focuses on the expected volatility of the S&P 500 over a 3-month period?
Question 3: If both VIX and VVIX are high, what could it indicate?
Question 4: What does the RVX measure?
Question 5: Which index would be most useful for traders interested in the tech sector?
1. b) The fear gauge
2. b) VIX3M
3. b) A particularly uncertain period ahead
4. a) Expected volatility of the Russell 2000 Index
5. b) VXN
Recommended Books to Further Your Knowledge On Volatility Trading
Recommended Books to Further Your Knowledge On Volatility Trading
For Beginner Traders:
For Beginner Traders:
The VIX Traders Handbook by Russell Rhoads
An introduction to trading the VIX, written by a former Director of Education of the CBOE. This book is a good starting point for those new to volatility indices.
This book is approachable for beginners and covers trading strategies related to volatility indices, including the VIX and VXX.
For Intermediate Traders:
For Intermediate Traders:
This book provides a comprehensive look at options trading, including the concept of volatility. It goes beyond the basics and is often recommended for intermediate traders.
This book dives deeper into the concept of volatility as an asset class and offers strategies around it, suitable for traders with some experience.
This book focuses on various asset classes and is good for traders looking to expand their understanding of volatility.
For Advanced Traders:
For Advanced Traders:
This book provides advanced insights into the volatility surface, skew, and term structures and is aimed at traders with a deep understanding of the subject.
An in-depth look at options trading, including advanced concepts like volatility and hedging strategies. Recommended for experienced traders.
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