#798 - How Is The CBOE VIX Calculated?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be answering the question, "How is the CBOE VIX calculated?" The VIX is actually a measure of 30-day expected volatility for the S&P 500. You could basically say that the VIX is a gauge for judging the implied or the expected movement in the S&P 500 over the next 30 days. And so, what they do is they have a bunch of formulas and ways that they do it which they have on their site, but it basically boils down to looking at at the money and out of the money puts and calls that are more than 23 days from expiration and less than 37 days from expiration for the SPX. And so, what they do is they take all of the AM settlement SPX options along with any PM settlement weekly options that expire and they basically weight this to somewhere around 30 days of expected volatility. And so, what happens is that each week, the contracts and the calculations roll to the next maturity. As one week falls off, then they start accumulating the pricing of the options at the next week. And so, it's this constant moving target that basically is trying to judge or calculate how much people expect market to move in the next 30 days. Now, again, just keep in mind that the VIX is a judge of just market implied volatility for the SPX. It is not based on the RUT or the Dow or any other securities. It's not based on any tech stocks necessarily unless they're included in the S&P. It's basically a broad market expectation of where implied volatility is going to go in the future. And so, that's basically how they do it. Again, you can look at the details of the calculations, all of formulas. CBOE does a really good job of detailing this in a white paper. You can just search VIX calculation. But again, what they're basically doing is just taking a weighted measurement of at the money and out of the money calls and puts no more than 23 days and less than 37 days from expiration for SPX. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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#798 - How Is The CBOE VIX Calculated? is an episode from The "Daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online by Kirk Du Plessis.

This episode is 03:10 long.

This episode was published on Nov 29, 2019.

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