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| Name | What Is Volatility Index? | VIX | Trading using Options Sentiment Indicators | Quantra Course |
| Video Uploader | Video From Quantra |
| Upload Date | This Video Uploaded At 29-04-2022 14:15:00 |
| Video Discription | Part of the course 'Trading Using Options Sentiment Indicators' on Quantra. Start for FREE! https://quantra.quantinsti.com/course/trading-using-options-sentiment-indicators Implied volatility is forward looking, and it is an indication of the volatility of the future market. Volatility Index or VIX is one such indicator that helps us understand the sentiment in the market using implied volatility. VIX is a trademark ticker symbol for the Chicago Board Options Exchange (C B O E) Volatility Index. It is a measure of the implied volatility over the next 30 days for the S AND P 500 index options. VIX was introduced in 1993. It was originally a weighted measure of the eight S AND P 100 stocks. Later, it expanded and options were taken from a broad range in the S AND P 500 index. VIX is an up-to-the-minute market estimate for implied volatility of the S AND P 500 Index. It is calculated by taking the midpoints of the bid-ask quotes (that is price of options), of the real-time S AND P 500 index options. For each tick VIX provides an instantaneous measure of how much the market would fluctuate in the next 30 days. Hence the volatility index is forward looking and it predicts the volatility of the market in future. While calculating VIX of S AND P 500 index, the variance of all the options that are included in VIX are taken into consideration. The variance of options with expirations of near month and next month that is first and second month are considered. So, options with more than 23 days and less than 37 days to expiration are used to calculate the VIX. These S P X options are then weighted accordingly for further calculations. C B O E calculates the VIX every 15 seconds (approx.) during regular and extended trading hours for S P X options, according to a formula that calculates variance using a kernel smoothed estimator, (a statistical technique). This formula takes option premiums of out of the money call and put options, expiring in the first two months as inputs. This calculated variance is then transformed to standard deviation, by taking its square root and is multiplied by 100 to obtain the value of VIX. The VIX is quoted in percentage points, that is a VIX of 20 represents an expected annualized change of 20% at a 68% confidence level, or within one standard deviation of the normal probability distribution. This annualized number of VIX of 20% can be transformed into a monthly number, by dividing it by the square root of 12, which is equal to 5.77% on a monthly basis. Similarly, weekly VIX can be obtained by dividing the annualized value by square root of 52, which is 2.77% on a weekly basis. Similar to historical or implied volatility, VIX indicates the change in upward or downward movement from the average price of the index, but does not specify the direction of change. VIX futures and VIX options were also introduced in due time, as investors expressed interest in trading instruments that captured the volatility of the market. C B O E created other variations of VIX, e.g. V X N (tracks NASDAQ) and V X D (tracks Dow Jones Industrial Average). Leading exchanges all over the world started calculating VIX for their own stock exchanges, which are licensed by C B O E e.g. India VIX. VIX is commonly known as fear index or fear gauge. Suggested reads ✅ Systematic Options Trading https://quantra.quantinsti.com/course/systematic-options-trading About Quantra Quantra is an online education portal that specializes in Algorithmic and Quantitative trading. Quantra offers various bite-sized, self-paced and interactive courses that are perfect for busy professionals, seeking implementable knowledge in this domain. Find more info on - https://quantra.quantinsti.com/ Like us on Facebook: https://www.facebook.com/goquantra/ Follow us on Twitter: https://twitter.com/GoQuantra [JyxI3efcbxo] |
| Category | Education |
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