Download Introducing a Better Gauge of Market Volatility

SPYIX
Introducing a Better Gauge of Market Volatility
U.S. Indices
The Bats-T3 SPY Volatility Index, also known as the SPYIX (“Spikes”), is a measure of expected 30-day volatility in the SPDR
S&P 500 ETF (SPY) — the world’s largest exchange traded fund, which tracks the most widely followed stock index in the U.S.
SPY is the world’s most actively traded security with nearly $24bn in daily notional value traded per day in the third quarter
of 2015. Options associated with the SPY account for nearly half of the $110bn in notional value traded per day across all
U.S. equity options.
The SPYIX was developed in partnership with T3 Index, a respected expert in volatility and options-related indexing, and
features a number of enhancements designed to be highly resilient and more responsive in today’s highly automated
markets, while remaining more consistent with the way volatility traders measure and manage their risk.
Reliability
The SPYIX is designed to withstand the most turbulent market conditions...when investors need it most.
The graph below demonstrates the resiliency of SPYIX index prices on August 24, 2015 — a day characterized by
unprecedented levels of cross-market volatility and exceptionally high volume traded.
During the opening of trading on that day, reliable prices on manually traded S&P 500 index option contracts at the Chicago
Board Options Exchange (CBOE) were not available, preventing the calculation of the CBOE SPX Volatility Index (VIX) for
the first half-hour of the day. In contrast, electronically traded SPY options were quoting actively, allowing the SPYIX to be
calculated from the opening seconds.
SPYIX
vs. VIX
SPYIX vs. VIX
08/24/15,
a.m. —- Displayed
in seconds
Seconds,9:30–11:00
9:30-11:00AM
August 24th,
2015
60
55
50
45
40
35
30
25
SPYIX
VIX
10:58
10:56
10:54
10:52
10:50
10:48
10:46
10:44
10:42
10:40
10:38
10:36
10:34
10:32
10:30
10:28
10:26
10:24
10:22
10:20
10:18
10:16
10:14
10:12
10:10
10:08
10:06
10:04
10:02
9:58
10:00
9:56
9:54
9:52
9:50
9:48
9:46
9:44
9:42
9:40
9:38
9:36
9:34
9:32
9:30
20
Stability
The SPYIX calculation incorporates a proprietary “price-dragging” technique to capture live options prices, reducing erratic
intraday movement in the index that can result from using only midpoint values. Price dragging only updates the price of the
option in the index when a trade occurs or the quote passes through the current price level. This helps prevent routine quote
adjustments in out-of-the-money options from unnecessarily impacting the index value.
In the example below, using midpoint values results in a price change that potentially impacts the index value in every quote
update. With price dragging, the changes are less sensitive to these movements but still capture enough of the variation to
accurately price volatility in the index.
Timestamp
9:30:00
9:30: 57
9:31:23
9:32:04
9:32:47
9:33:12
9:34:39
9:36:18
9:37:31
—
0.28
0.32
0.32
0.34
0.30
0.30
0.30
0.27
BID
—
0.25
0.25
0.28
0.28
0.28
0.28
—
—
TRADE
—
—
—
—
—
—
0.30
—
—
MIDPOINT
—
0.265
0.285
0.30
0.31
0.29
0.29
0.275
0.26
0.00
0.25
0.25
0.28
0.28
0.28
0.30
0.30
0.27
ASK
PRICE DRAGGING
The result of price dragging is a more stable indicator that drastically reduces extreme values that can distort the intraday
view of market volatility.
Using another example from August 24, 2015, the chart below shows how the SPYIX maintained a more consistent path
throughout the day, avoiding many of the choppy peaks and valleys that were exhibited by the VIX and can provide more
noise than signal for investors.
SPYIX
vs. VIX
SPYIX vs. VIX
08/24/15
— Displayed
in seconds
Seconds
- August 24th,
2015
60
55
50
45
40
35
30
25
SPYIX
VIX
16:00
15:30
15:00
14:30
14:00
13:30
13:00
12:30
12:00
11:30
11:00
10:30
10:00
9:30
20
Compatibility
The SPYIX uses the well-known variance swap methodology to calculate volatility, making the SPYIX highly compatible with
existing volatility-based futures, options and exchange-traded products available in the market that use a similar method.
The SPYIX index can be physically replicated with a strip of options, unlike other alternative measures that use a modeldriven, hypothetical approach.
The chart below shows the daily close of the SPYIX tightly overlapping and tracking the VIX over time.
SPYIX vs. VIX
2005–2016 — Daily close values
More Information
The SPYIX is published on the consolidated tape and is accessible on terminals from both Bloomberg and Reuters, under the
ticker “SPYIX.”
For additional details on the construction methodology, view the Bats-T3 SPY Volatility Index White Paper at
www.bats.com/us/equities/indices/spyix/.
The information contained in this document is the proprietary information of Bats Global Markets, Inc. and T3 Index, however its accuracy and completeness is not expressly nor
implicitly guaranteed. Past performance is not indicative of future results.
The information in this document is provided for information purposes only, and is not intended to provide, and should not be relied on for financial or legal advice. The information
herein is presented “as is” and without representations or warranties of any kind. The Parties shall not be liable for loss or damage, direct, indirect or consequential, arising from
any use of the Data or action taken in reliance upon the Data.
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options.
Copies are available from your broker, by calling 1-888-OPTIONS or from The Options Clearing Corporation at www.theocc.com.
No statement within this document should be construed as a recommendation to buy or sell a security or futures contract or to provide investment advice.
Contacts:
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Index Services: [email protected]
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