What Do CBOE Volatility Indexes Say?
Source: http://feedproxy.google.com/~r/qvmgroup/yrMF/~3/rnxPQbxaT3s/6412Posted on Monday, October 19th, 2009 | In Commodities, Investing Lessons, Market Commentary
The CBOE publishes several options implied volatility indexes that can be helpful to stock investors who want to peek around the corner to the future through the eyes of options traders.
These two tables show the options implied (30-day future) volatility for several important indexes or index funds:
click image to enlarge
The “per year” column is the published annualized volatility (1 standard deviation). The columns for other periods (quarter, month, week and day) are math transforms of the annualized volatility to show the expected volatility for those periods of time.
Plus or minus one standard deviation is expected to encompass 67% of prices during the period. Plus or minus two standard deviations is expected to encompass 95% of prices during the period.
Example: The “per day” column says that the price of a GLD position is expected to move within a plus or minus one-day 1.09% variation with a 67% probability, and to move within a plus or minus one-day 2.19% variation with a 95% probability.
This sort of information can be useful in selecting securities based on volatility and also in setting stop loss parameters.
The proxy securities for the indexes in the tables are DIA (DJIA 30), SPY (S&P 500), QQQQ (NASDAQ 100), and IWM (Russell 2000). Oil, gold and the Euro volatility indexes are based directly on the underlying ETFs: USO, GLD and FXE.
Disclosure: We own SPY, IWM, GLD and FXE in some portfolios.
Richard Shaw
QVM Group LLC
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 About Richard Shaw (http://www.QVMgroup.com)
Richard is a principal of QVM Group LLC, a fee-based investment advisor based in Connecticut with clients across the country. He provides investment coaching to "do-it-yourself" investors, and manages portfolios for those who prefer not to make their own decisions. His investment approach is based on value, asset allocation, benchmarking, expense control, risk management, customizing portfolios to each client's specific circumstances, and regular communication about strategy and performance. The QVM Group team also provides municipal refinance services, strategic business planning and financial analysis service for new ventures, private acquisition analysis, and custom investment research. Richard's extensive experience, includes serving on the Board of Directors of Aberdeen Asset Management PLC (London Stock Exchange: ADN), membership on the Board of Directors of Phoenix Investment Counsel (renamed Virtus Investment Advisors), a U.S. pension manager and investment advisor to the Phoenix Funds (renamed Virtus Funds), as well as serving as Managing Director of a series of offshore investment funds based in Luxembourg. He has led institutional asset management sales and had overall responsibility for management of a U.S. mutual funds broker-dealer. He was a charter investor and member of the Board of Directors of several internet companies, including Lending Tree prior to its IPO. He is a graduate of Dartmouth College. QVM Group LLC is a Registered Investment Advisor. Visit the QVM Group website http://www.qvmgroup.com/QVMinvest/ |
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