Chicago Board Options Exchange (CBOE) VIX of VIX (VVIX)

Chicago Board Options Exchange (CBOE) VIX of VIX (VVIX)

VIX of VIX (or VVIX) is a measure of the volatility of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX). Investors can benefit from using the VIX of VIX because it provides useful insight into VIX option and future prices, including the following information: The expected volatility of the VIX The expected volatilities that influence the direction of VIX option prices with varying expiration dates A general idea of market confidence in the VIX future values Investors can capitalize on volatility when there are discrepancies between VIX futures prices and their fair values. VIX of VIX influences the direction of VIX options: VIX prices are determined based on the VIX of VIX. The CBOE's VVIX (VIX of VIX) is a measure of the change of volatility in the VIX volatility index. VIX of VIX (or VVIX) is a measure of the volatility of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

The CBOE's VVIX (VIX of VIX) is a measure of the change of volatility in the VIX volatility index.

What Is the Chicago Board Options Exchange VIX of VIX (VVIX)?

VIX of VIX (or VVIX) is a measure of the volatility of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX). The CBOE's VIX measures the short-term volatility of the S&P 500 indexes, and the VVIX measures the volatility of the price of the VIX. In other words, VVIX is a measure of the volatility of the S&P 500 index and alludes to how quickly market sentiment changes.

The CBOE's VVIX (VIX of VIX) is a measure of the change of volatility in the VIX volatility index.
VVIX measures how rapidly S&P 500 volatility changes, and is thus a measure of the volatility of the index.
Investors can use the VVIX and its derivatives to hedge against volatility swings or bet on changes in the VIX options market.

Understanding the VVIX

The CBOE volatility index — or VIX Index — was started in 1993. In 2004, VIX futures and options began trading. The CBOE VIX measures the short-term (30-day) market volatility of the option prices of the S&P 500 Index (SPX), taken from a range of both call and put options. VIX levels above 30 generally tend to indicate high volatility; those below 20 tend to indicate low volatility.

The VIX is interpreted as an indicator of the level of investor confidence or fear in the market, and therefore the level of investment risk, but it is commonly known as the "uncertainty index." Higher premiums on VIX options indicate higher levels of uncertainty. Trading on VIX levels allows investors to invest in market volatility regardless of the actual direction of stock prices, and it provides an opportunity to diversify a portfolio.

VIX of VIX, or VVIX, in turn, allows investors to put their money on the speed of changes of the volatility of stocks rather than just on the volatility of stocks themselves. VIX of VIX influences the direction of VIX options: VIX prices are determined based on the VIX of VIX. VVIX is calculated using the same algorithms that determine VIX option prices.

How Can Investors Capitalize on the VIX of VIX?

Investors can benefit from using the VIX of VIX because it provides useful insight into VIX option and future prices, including the following information:

Investors can capitalize on volatility when there are discrepancies between VIX futures prices and their fair values. Pitfalls to investing in the VIX itself include higher commissions and different tax treatment. It can also be riskier to invest in the VIX because options and futures have set expiration dates — the investor has to predict both the volatility and the timeframe in which it will reach that level.

The most common and basic way to add VIX to a portfolio is through exchange-traded notes (ETNs), while options and futures are riskier but have larger payoffs. Options have built-in leverage, which means returns are higher, but their prices can change from the VIX since they are based on expected forward value. They are traded European-style, which means they cannot be exercised before the expiration date. Futures also have inherent leverage, and their prices are based on the forward value of VIX, though the actual value may differ.

Related terms:

Call Option

A call option is a contract that gives the option buyer the right to buy an underlying asset at a specified price within a specific time period. read more

Exchange-Traded Notes (ETN)

Exchange-traded notes (ETNs) are a type of unsecured debt security that tracks an underlying index of securities and trades on a major exchange like a stock. read more

Fair Value

Fair value can refer to the agreed price between buyer and seller or, in the accounting sense, the estimated worth of various assets and liabilities. read more

Implied Volatility (IV)

Implied volatility (IV) is the market's forecast of a likely movement in a security's price. It is often used to determine trading strategies and to set prices for option contracts. read more

OEX

OEX, which trades on the Chicago Board Options Exchange (CBOE), is the ticker symbol used to identify Standard & Poor's 100 index options. read more

Put Option : How It Works & Examples

A put option grants the right to the owner to sell some amount of the underlying security at a specified price, on or before the option expires. read more

S&P 500 Index – Standard & Poor's 500 Index

The S&P 500 Index (the Standard & Poor's 500 Index) is a market-capitalization-weighted index of the 500 largest publicly traded companies in the U.S. read more

Cboe Volatility Index (VIX) : What Is It?

The Cboe Volatility Index, or VIX, is an index created by Cboe Global Markets, which shows the market's expectation of 30-day volatility. read more

VIX Option

A VIX option is a derivative security based on the CBOE Volatility Index as its underlying asset.  read more

Volatility : Calculation & Market Examples

Volatility measures how much the price of a security, derivative, or index fluctuates. read more