Paul B. Stephens CBOE 1-312-786-7495 [email protected] Mexico Risk Management 2006 Four Seasons...
-
Upload
avice-horn -
Category
Documents
-
view
217 -
download
1
Transcript of Paul B. Stephens CBOE 1-312-786-7495 [email protected] Mexico Risk Management 2006 Four Seasons...
Paul B. Stephens [email protected]
Mexico Risk Management 2006Four Seasons Hotel, Mexico City, October 12-13, 2006
Trading and Managing Equity Market Volatility
2
CBOE Introduction
The Chicago Board Options Exchange, founded in 1973, is the creator of listed options and the world’s largest options marketplace. CBOE is the industry leader in product innovation, having created equity options, index options, LEAPS, and, more recently, “WeeklysSM” options and Options on VIX® – CBOE’s widely followed investor “fear gauge.”
Currently, CBOE trades options on 1,766 individual equities, 56 broad- and sector- based indexes, 61 exchange-traded funds and 4 interest rate products. CBOE’s wholly-owned subsidiary, the CBOE Futures Exchange (CFE), lists 26 futures contracts including its flagship product, VIX Futures.
In Sep 2006 CBOE traded an average of 2.6 million contracts per day – 33% higher than Sep 2005.
3
Managing Volatility
Latest Trends
Options-based Indexes
- Volatility indexes
- BuyWrite (covered call) indexes
Volatility-based products and trading
- Index and ETF options
- Volatility-based futures and options
Electronic trading
4
Select Volatility Indexes
VIX – CBOE Volatility Index (S&P 500)
VXN – CBOE NASDAQ Volatility Index
VXD – CBOE DJIA Volatility Index
RVX – CBOE Russell 2000 Volatility Index
5
CBOE Volatility Index (VIX )
Since 1993 VIX has been the premier barometer of investor sentiment and market volatility
In Sept. 2003 the VIX methodology was revised
VIX Futures were introduced in March 2004
VIX Options launched February 2006
See http://www.cboe.com/vix
6
VIX: The Fear Gauge
7
Volatility Index Methodology In September 2003, CBOE revised VIX:
1. Moved from using S&P 100 to S&P 500 Index options
2. Continued to use nearby and next-to-nearby expiration months for constant, 30-day volatility measure
3. Old VIX (now ticker VXO) was an average of implied volatilities and was a measure of ATM volatility. New methodology for VIX and all other CBOE volatility indexes is an average of options prices and covers the entire range of strike prices. (i.e., volatility skew)– A robust measure of expected volatility
– A better index for offering volatility-based products
8
Select BuyWrite Indexes
BXM – CBOE S&P 500 BuyWrite Index BXY – CBOE S&P 500 2% OTM BuyWrite
Index
BXN – CBOE NASDAQ BuyWrite Index BXD – CBOE DJIA BuyWrite Index BXR – CBOE Russell 2000 BuyWrite Index
9
CBOE S&P 500 BuyWrite Index (BXM)
The BXM is based on buying an S&P 500 Index stock portfolio and “writing” (or selling) the near-term S&P 500 Index (SPX) “covered” call option.
% Change In Year-End Prices, Select Stock Indexes
In October 2004, Ibbotson Associates found that CBOE’s BXM had the best risk-adjusted performance of major domestic and international equity-based indexes over the last 16 years.
At least 8 licenses have been granted, and there is now more than $20 billion in over 30 BuyWrite funds.
10
BXY $824BXM $735
S&P 500 $726
30-yr TBonds $419
3-mo.T-Bills $222
$0
$300
$600
$900
Jun
-88
Jun
-90
Jun
-92
Jun
-94
Jun
-96
Jun
-98
Jun
-00
Jun
-02
Jun
-04
Mo
nth
-en
d p
rice
s (s
cale
d s
o th
at a
ll =
$1
00
on
ince
ptio
n d
ate
of J
un
e 1
, 19
88
)
* June 1988 is the first month for daily prices for the SPTR and BXM indexes. Sources: CBOE & Bloomberg. The BXM Index is designed to represent a hypothetical buy-write strategy. Like many passive indexes, the BXM Index does not take into account significant factors such as transaction costs and taxes and, because of factors such as these, many or most investors should be expected to underperform passive indexes. T-Bills and T-Bonds are
represented by Citigroup indexes. See Risk Disclosure at www.cboe.com/BXM for more information.
Stocks, Bonds, T-Bills and BuyWrite IndexesTotal Return Indexes from June 1988* – Mar. 2006
11
Return Comparisons
12
Risk Comparisons
13
Negative Skew
14
CBOE Leading Indexes & ETFs Average Daily Volumes (ADV), 2006 Year through April
Cash Settled
SPX 346,000 + 42%
OEX 66,600 - 10%
DJX 30,200 – 4%
NDX 28,300 + 43%
MNX 22,300 – 9%
VIX 13,800 (new)
XEO 10,000 + 41%
MVR 8,300 + 521%
ETF Settled
QQQQ 119,000 + 19%
SPY 100,000 + 133%
IWM 90,000 + 112%
DIA 37,000 + 48%
XLE 17,600 + 242%
OIH 13,000 + 1270%
SMH 10,000 + 45%
ADV for CBOE 2.48 Million contacts April 2006 – New Record
15
CBOE Leading Indexes & ETFs Average Daily Volumes (ADV), May 2006
Cash Settled
SPX 505,361 + 94% vs. May ‘05
OEX 87,089 + 24%
VIX 46,368 (new)
DJX 42,297 + 75%
NDX 38,077 + 43%
MNX 34,707 + 93%
XEO 18,165 + 153%
RUT 10,078 + 160%
MVR 8,676 + 214%
XSP 5,282 (new)
ETF Settled
IWM 296,971 + 464%
QQQQ 152,511 + 45%
SPY 121,409 + 123%
DIA 47,825 + 62%
XLE 39,799 + 307%
OIH 17,576 + 1214%
SMH 8,591 + 72%
EEM 6,581 (new)
All CBOE 3.2 Million contacts ADV– New Record
16
CBOE Mini-SPX (XSP)
Weeklys SPX, XSP OEX, XEO
VIX Options
CFE• Volatility-Based Futures
• VIX and VXD• VT (3-month realized
variance)• VA (12- month realized
variance)
BXM Futures (launched Oct 2006)
Select New Product Introductions
17
VIX Futures
Trade on CBOE Futures Exchange (CFE)
Settle to implied volatility• May 2006 average daily volume (ADV) was
2,294 contracts
• Open interest on May 31 was 33,346 contracts
18
VIX Futures: “VXB <Index> CT <Go>”
19
Volatility of Volatility
Historic Volatilities Based on Daily Returns in 2005
* refers to the price of the near-term VIX futures
20
VT and VA Futures
Trade on CBOE Futures Exchange (CFE)
Settle to realized variance• VT Futures – 3 month variance• VA Futures – 12 month variance
The typical quote for $250,000 vega on one-year variance has been about ½ vol point wide.
21
VT Futures: “VTA <Index> CT <Go>”
22
VA Futures: “VAA <Index> CT <Go>”
23
VIX Options
Launched Friday, February 24, 2006
Cash-settled index options trade on CBOE (SEC-regulated)
Settle to Special Opening Quotation (SOQ) of VIX • $100 multiplier• Settle on Wednesdays, 30 days
prior to SPX monthly expirations
VIX Since 1990
0
25
50
01/02/90
01/06/92
01/06/94
01/11/96
01/14/98
01/20/00
01/31/02
02/06/2004
(Jan. 2, 1990 - Dec. 30, 2005). Sources: CBOE, Bloomberg and S&P
VIX
Dai
ly C
losi
ng
Pri
ces
Average daily volume for April 2006: 15,052 contracts.
Open interest on April 28 was 351,146 contracts.
More than 60,000 contracts traded on Monday, May 1.
24
VIX Options: “VIX <Index> OMON <Go>”
25
VIX Futures & Options
Possible Uses Include – To take advantage of a market view on volatility
To manage options positions
To hedge equity portfolios or credit default swap (CDS) exposures
26
The Hybrid Market Model Provides a choice of screen-based trading or open
outcry. Roll-out began in June 2003. All equity options and major ETF options traded under hybrid system. Remote Market Makers added in April 2005.
Executed electronically: 94% of orders (up from prior year 88%)
67% of contracts (up from prior year 46%)
27
30%
40%
50%
60%
70%
80%
90%
100%
2004
Sep. 2
004
2005
2006
Aq
wa
Sc
ore
/ N
BB
O %
0
50
100
150
200
250
300
Av
era
ge
Qu
ote
d S
ize
Size CBOE Aqwa NBBO %
AQWA/Size & % of Time on NBBO All CBOE Options
January 2004 – March 13, 2006
63.4%
90.2%
49.0%
94.1%
80.1%
28
New Technologies
Electronic FLEX• Agreement with Cinnober to provide trading
system set to launch late 2006, early 2007
Market Data Service• Web-based access to CBOE and OPRA options
data (including tick data, volume by series,…)• Historical data to go back to 1990, in some
cases to 1973
29
Resources Index-Related Products:
• www.cboe.com/VIX• www.cboe.com/BuyWrite• www.cboe.com/Weeklys
Trading:• www.cboe.com/Hybrid• www.cboe.com/FLEX
Spanish Website:• www.cboe.com/Spanish
30
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options, which is available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606. The information in these slides is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in these materials. No statement within these materials should be construed as a recommendation to buy or sell a security or to provide investment advice. Any strategies discussed, including examples, do not include commissions, dividends, margin, taxes, and other transaction costs. However, these costs will affect the outcome of transactions and should be considered. For further information regarding the tax effects of transactions, consult your tax advisor. These slides have been prepared solely for informational purposes, based upon information generally available to the public from sources believed to be reliable, but no representation or warranty is given with respect to its accuracy or completeness. Supporting documentation for any claims, comparisons, statistics or other technical data is available by calling 1-888-OPTIONS, sending an e-mail to [email protected], or by visiting www.cboe.com. Past performance is not indicative of future results.
S&P 100 ® and S&P 500 ® are registered trademarks of McGraw Hill, Inc. and are licensed for use by the Chicago Board Options Exchange, Inc. CBOE ®, Chicago Board Options Exchange®, OEX® , XEO® , MNX® , VIX ®, CBOEdirect ®, CBOE Volatility Index®, and HyTS® are registered trademarks of the Chicago Board Options Exchange, Inc. SPXSM and BXMSM are servicemarks of the Chicago Board Options Exchange, Inc. Nasdaq 100 ® is a registered trademark of the Nasdaq Stock Market Inc.
Copyright 2006, Chicago Board Options Exchange®, Incorporated. All rights reserved.
CBOE Presentation