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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: General: 913.815.7000 | bats.com Sales: 212.378.8560 | [email protected] Index Services: [email protected] www. bats.com | @BatsGlobal | ©2016 Bats Global Markets, Inc. - All Rights Reserved v1.0