VIX Sets Record With 1 Million Contracts

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Trading in the CBOE Volatility Index (CBOE: VIX) yesterday set a volume record, trading more than one million contracts for the first time ever, the Chicago Board Options Exchange announced. The CBOE also announced it had applied for regulatory approval to trade options on VIX-style indexes on up to 40 different individual equities and Exchange-traded funds (ETFs).

In attempting to build on its VIX success, the CBOE applied to the Securities and Exchange Commission for approval to trade options on volatility indexes for Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Goldman Sachs (NYSE: GS), Google (NASDAQ: GOOG), IBM (NYSE: IBM), and the CBOE Crude Oil ETF Volatility Index (CBOE: OVX), based on United States Oil Fund (NYSE: USO) options.

It’s no surprise why the VIX has been getting so much attention. The VIX measures volatility in the broad stock market and is referred to by some as the “fear gauge.” It often rises when uncertainty in trading markets is rising, and is seen by some as a contrary signal to the movement seen in broad indices like the S&P 500 Index.

The VIX volume record was set as traders around the globe reacted to the recent series of disasters hitting Japan, the world’s third largest economy. The VIX was up 3.19% yesterday while the S&P fell 1.12%. In morning trading today the VIX was up .11 to $24.43. Official volume numbers aren’t totaled until the close of trading.

The CBOE (NASDAQ: CBOE) owns the volatility measuring methodology, and the VIX has become an important competitive tool as it seeks trading volume against other options exchanges in the U.S. For options trading investors large volume in an options product can mean a quicker fill of an order. High volume option products may also have tighter spreads between the bid and offer, thus offering better prices for traders.

The CBOE also said it would begin today to apply its VIX methodology to options on six sector-specific ETFs, including the iShares MSCI Emerging Markets Index Fund (CBOE: VXEEM), iShares Trust FTSE China 25 Index Fund (CBOE: VXFXI), the iShares MSCI Brazil Index Fund (CBOE: VXEWZ), Market Vectors Gold Miners Fund (CBOE: VXGDX), iShares Silver Trust (CBOE: VXSLV) Energy Select Sector SPDR (CBOE: VXXLE). The quotes for the new products are available on the CBOE’s Web site.

The VIX traded 1,038,000 contracts yesterday while a CBOE subsidiary, the CBOE Futures Exchange (CFE), also set a volume record, trading 97,337 contracts.

Clearly the CBOE is looking to brand itself as the leading source of volatility information and the platform through which options investors can trade those indexes. But the exchange runs the risk of too many strange and specialized products, creating a clogged volatility marketplace. Some have criticized the ETF space for growing too quickly and rolling out investment funds that are confusing for average investors.

We’ll see if the move pays off, or is just another gimmick. But there’s no doubt that volatility is the buzzword on Wall Street right now, so this is as good a time as any for the CBOE to make its move.


Article printed from InvestorPlace Media, https://investorplace.com/2011/03/vix-sets-record-with-1-million-contracts-aapl-amzn-uso-goog/.

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