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Historic Volatility Recently Dropped Below 1.7 for Eight Cboe Benchmark Indexes
By: Matt Moran | November 2, 2017

In times of geopolitical uncertainties, many investors are searching for investments with low volatility and higher yields.

Several news stories have noted that stock indexes recently had low volatility. On October 18 the 20-trading-day historic volatility for the S&P 500 (SPX) Index dropped to 3.4, its lowest level since 1969 (source: Bloomberg). There now is concern that with higher price-earnings ratios, the volatility of stock indexes could spike in coming months.

EVEN LOWER HISTORIC VOLATILITY FOR KEY OPTIONS-BASED BENCHMARK INDEXES IN 2017

So far in 2017, the daily averages for the 20-trading-day historic volatilities have been around 6.9 for the SPX and 3.2 for the Cboe S&P 500 PutWrite Index (PUT). On October 18, 2017, the 20-trading-day historic volatility of the PUT Index dropped to 0.8, its lowest level since mid-2014.



As shown in the chart below, in 2017 the 20-trading day historic volatility dropped below 1.7 in 2017 for 8 Cboe options-based indexes – CLLZ, BXMD, CMBO, CNDR, BXM, BXMW, WPUT, and PUT.



VOLATILITY AND RETURNS OVER MORE THAN 3 DECADES

The next three charts below all provide analyses of benchmark indexes since mid-1986. In the first chart below, four of Cboe’s options-based indexes – PUT, BXM, BFLY and CMBO – all had lower volatility than the bond, stock and commodity indexes.





The Cboe BXMD Index writes out-of-the-money SPX options. As shown in the next two charts, the BXMD Index had higher returns than the S&P 500 and S&P GSCI indexes over a period of more than 31 years.



VIX-BASED BENCHMARK INDEXES SINCE 2006

In the next chart below, it is interesting to compare the contrasting performances in 2008 and in recent years of these two indexes - the Cboe VIX Premium Strategy Index (VPD) (a strategy that sells VIX futures), and the S&P 500 VIX Mid-term Futures Index (a strategy that buys VIX futures).



http://www.cboe.com/blogs/options-hub/2017/11/02/historic-volatility-recently-dropped-below-1.7-for-eight-cboe-benchmark-indexes

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