Over the past two months, there has been increased interest in (1) portfolio protection strategies (2) learning more about prudent uses of VIX® futures and options, and (3) following brackets. To tie all these topics together, below is a new bracket with 8 benchmark indexes that shows that two indexes that buy VIX call options (LOVOL and VXTH) had the lowest standard deviations over the past decade.
DESCRIPTIONS OF FOUR CBOE BENCHMARK INDEXES THAT USE VIX FUTURES AND/OR VIX OPTIONS
While the VIX Index itself is a gauge and is not investable, Cboe offers the following VIX-related benchmark indexes (all shown in image above) that are designed to serve as benchmarks for hypothetical investable performance over more than a decade.
- Cboe Low Volatility Index (LOVOL) is a 40% / 60% blend of the CBOE S&P 500 BuyWrite Index (BXM) and CBOE VIX Tail Hedge Index (VXTH); the portfolio overlays long VIX calls and short S&P 500 calls over an investment in S&P 500 stocks. cboe.com/LOVOL
- Cboe VIX Premium Strategy Index (VPD) overlays a sequence of short one-month VIX futures on a money market account; the short VIX futures positions are held until expiration and new VIX futures are then sold. cboe.com/VPD
- Cboe Capped VIX Premium Strategy Index (VPN) tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option; the short VIX futures position is capped with long VIX calls struck about 25 points higher than the VIX futures price. cboe.com/VPN
- Cboe VIX Tail Hedge Index (VXTH) buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index® (VIX). cboe.com/VXTH
LINKS TO RESEARCH PAPERS ON USE OF VIX FUTURES AND VIX OPTIONS
More information about benchmark indexes and related studies is at www.cboe.com/VIXbenchmarks.
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More blogs on use of VIX futures and options and related will be posted at this VIX Views website in the near future.