New Volatility Products Mean Even More Ways For You To Make Money

| October 9, 2013 | 0 Comments

With the way exchanges and investments companies are consistently rolling out new products, you could argue that this is the golden age of investing.  For investors and traders, there are more choices than ever before when it comes to different types of investments.

Back in the day, the average investor was fortunate to have access to stocks and government bonds.  Now, just about everything imaginable can be turned into an easy to follow index or highly accessible investment product.

Nowhere is this more apparent than with volatility products.  In fact, volatility indices have become some of the most watched benchmarks on the market.

Personally, I’m for as many volatility-related products as possible.  As an option trader, you can never have enough information about volatility and investor sentiment.

Fortunately, the CBOE has complied with my desires by regularly releasing new and exciting volatility products.  And just this week, the world’s largest options exchange made two more intriguing announcements regarding their rapidly growing volatility product portfolio.

First off, the exchange is launching futures and options on its Russell 2000 Volatility Index (RVX).  Since the Russell 2000 is the premier benchmark for small cap stocks, RVX is essentially the VIX for small caps.

And starting at the end of October, traders will be able to trade volatility products based on RVX.  It’s important because the small cap market is a widely followed and heavily traded asset class.  Plus, it opens up all kinds of cross-volatility trading opportunities.

But that’s not all the CBOE is doing…

The exchange just announced the creation of a new volatility benchmark, the CBOE S&P 500 Short-Term Volatility Index (VXST).

VXST is similar to VIX and uses the same methodology in its calculation.  However, VIX measures the average volatility of S&P 500 options using a 30-day horizon.  VXST instead uses a 9-day period.

What good is a 9-day horizon you ask?  Won’t it be susceptible to short-term market events?  Yes.  And that’s the point.

VXST will allow traders to measure/trade on market events such as government reports, Fed meetings, earnings, etc. 

In other words, it’s another volatility trading tool you can add to your toolbox – and as I mentioned earlier, the more ways you have to make money, the better it is for investors.

So far, the CBOE has only announced the release of the VXST index.  However, you can be sure futures and options will be tradable on it soon enough (pending regulatory approval).

Yours in Profit,

Gordon Lewis

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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