Cboe Global Markets will launch a new volatility index on Monday that will measure expected U.S. stock market swings for a given day, as the U.S. derivatives exchange caters to growing investor interest in trading short-dated options.
The Cboe 1-Day Volatility Index will measure the expected volatility of the S&P 500 Index over any given day using prices of S&P 500 options with one to zero day expirations over a range of strike prices, the exchange said.
The index launch comes as trading in zero days to expiry or ODTE options has boomed, making up nearly half of the daily trading volume for S&P 500 options, per Cboe data.
“We developed VX1D to answer customer demand,” said Rob Hocking, head of product innovation at Cboe. “It provides the granularity that the traditional 30-day VIX can’t.”
Coming three decades after the creation of the widely watched Cboe Volatility Index - commonly referred to as the Wall Street “fear gauge” - the short-dated index will use a methodology similar to its older cousin but will likely be more mercurial given its focus on a single day, the exchange said.
Investors have recently complained that the VIX - which measures 30-day expected volatility of the S&P 500 Index based on contracts with more than 23 days and less than 37 days to expiry - is failing to capture the recent surge in trading action in near-dated contracts.
The one-day VIX index would have more than doubled in value from 15.30 to 40.19 between March 8 and March 13 as stocks reacted to the recent bank crisis, according to a Cboe model. By contrast, the VIX rose only to 26.52 from 19.11, or less than 40%, for that same period.
“It will be useful for investors to get a data point on very near-term volatility,” Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, said.
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