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"Volatility Index"


StormChaser

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7 hours ago, StormChaser said:

What market does this DFB product track and where in the IG documentation is that information given.  It comes up in a search for VIX but the price does not match the VIX price.

Hi @StormChaser,
You can find information about the VIX on this IG page: https://www.ig.com/uk/indices/what-is-vix-how-do-you-trade-it

The VIX is a real-time volatility index, created by the Chicago Board Options Exchange (CBOE). It was the first benchmark to quantify market expectations of volatility. But the index is forward looking, which means that it only shows the implied volatility of the S&P 500 (SPX) for the next 30 days.

I hope that it helps!

All the best - Arvin

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I don't think @ArvinIG answered @StormChaser's question at all!

The CBOE index referenced by Arvin is not directly tradeable on any platform, it's purely a data feed.  

Volatility is traded via volatility futures, either directly on the CBOE or indirectly via a platform like IG. Futures have expiry dates in the future, consequently they are each going to express a different volatility level than the index (usually higher as one goes out in time as longer time frames have greater uncertainty). 

In the case of IG, if you search for Volatility Index on the platform you should see the DFB plus the two near-month futures that are tradeable (Oct 21 and Nov 21 as of this note). The future products should closely track the respective CBOE VIX futures market.

The Volatility Index DFB is created by IG and is interpolated from the price of the two near month futures contracts. There's an article somewhere in IG docs on how this calculation is performed; maybe check under the commodities section, but I can't recall exactly where it is.

With the above said, the comment that "the prices don't match" really isn't a useful statement given that the index and each published future for VIX will all have a different level at any point in time. You need to be very clear about which two instruments you are comparing to each other.

Additionally, you really need to understand futures 'roll' and the DFB calculation so that you understand the overnight holding charges you are going to incur or receive. In the case of Volatility trading, these are a significant contributor to the return that any strategy that holds a position overnight.  

 

 

 

 

 

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