By John Spence, MarketWatch
BOSTON (MarketWatch) — Investors are getting new ways to manage portfolio risk and measure sentiment using exchange-traded funds.
The Chicago Board Options Exchange is launching volatility indexes, in an effort to capitalize on the popularity of the CBOE Volatility Index /quotes/comstock/20m!i:vix (VIX 20.22, -0.39, -1.89%) , or VIX.
Stocks rally, volatility persists
Equities extend recovery as currencies stabilize, but event risk remains elevated, Barrons.com's Bob O'Brien reports.
Known as Wall Street’s ‘fear gauge,’ the index has surged recently as stocks have corrected following the earthquake in Japan and lingering turmoil in the Middle East and North Africa. Trading volume in options based on the VIX set a one-day record last week when over 1 million contracts changed hands for the first time, the CBOE said.
The exchange last week also said it has filed with regulators to list options on the CBOE Crude Oil ETF Volatility Index /quotes/comstock/27*!ovx (OVX 39.10, -2.80, -6.68%) .
The benchmark, in turn, is calculated using options based on the $2.4 billion U.S. Oil Fund /quotes/comstock/13*!uso/quotes/nls/uso (USO 41.62, +0.49, +1.19%) . The ETF provides exposure to oil prices by investing in crude futures.
Sharper tools
Essentially, CBOE Holdings Inc. /quotes/comstock/15*!cboe/quotes/nls/cboe (CBOE 28.20, +0.06, +0.21%) is attempting to broaden its VIX franchise by expanding the methodology to ETFs. The new offerings will “provide even more ways to manage volatility across a variety of asset classes,” the exchange said.
The flagship VIX measures expected volatility in markets using options on the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,294, -3.97, -0.31%) ; the VIX rises when traders are seeking protection from market pullbacks.
Exchange-traded funds and notes based on S&P 500 VIX futures have become popular trading vehicles to profit from rising volatility. See previous ETF Investing column on VIX-futures products.
The CBOE introduced VIX benchmarks tied to options on six highly-traded ETFs last week.
The funds are iShares MSCI Emerging Markets Index Fund /quotes/comstock/13*!eem/quotes/nls/eem (EEM 46.16, +0.06, +0.14%) , iShares FTSE China 25 Index Fund /quotes/comstock/13*!fxi/quotes/nls/fxi (FXI 42.79, +0.04, +0.09%) , iShares MSCI Brazil Index Fund /quotes/comstock/13*!ewz/quotes/nls/ewz (EWZ 74.24, +0.65, +0.88%) , Market Vectors Gold Miners ETF /quotes/comstock/13*!gdx/quotes/nls/gdx (GDX 58.42, +0.40, +0.69%) , iShares Silver Trust /quotes/comstock/13*!slv/quotes/nls/slv (SLV 35.51, +0.21, +0.59%) and Energy Select Sector SPDR Fund /quotes/comstock/13*!xle/quotes/nls/xle (XLE 77.39, -0.29, -0.37%) .
The new options-based indexes help investors “wanting to monitor volatility in specific sectors for ETFs they hold in their portfolios,” the CBOE said.
The exchange had already been calculating VIX benchmarks for options on SPDR Gold Shares /quotes/comstock/13*!gld/quotes/nls/gld (GLD 139.14, 0.00, 0.00%) and CurrencyShares Euro Trust /quotes/comstock/13*!fxe/quotes/nls/fxe (FXE 141.35, -0.29, -0.20%) , which tracks the movement of the euro against the U.S. dollar.
In February, CBOE unveiled plans to launch futures and options on the CBOE Gold ETF Volatility Index /quotes/comstock/20m!i:gvz (GVZ 16.55, -0.46, -2.70%) . The futures are slated to begin trading on March 25.
When building out the VIX brand, the exchange looked for ETFs that were actively traded and had “unique exposures” to markets sectors, said Bill Speth, a director of research at the CBOE.
The indexes “can give investors a historical sense of the nominal risk” in various sectors by tracking activity in ETF options, he added.
John Spence is a reporter for MarketWatch in Boston.
Alert Email Print
More ETF Investing
March 13, 2011 | ‘Copper top’ could spell weakness for broad market | |
March 6, 2011 | These ETFs tangle with volatile markets | |
Feb. 27, 2011 | Natural-gas ETFs hit on weather, supply | |
Feb. 20, 2011 | Investors pull money from gold ETFs | |
Feb. 13, 2011 | China ETFs’ slump could weigh on U.S. stocks |
Jennifer Waters
Consumer Confidential