Closer Look At Cme Group Cvol Indexes

By Craig Bewick
MAY 25 2021

Because of vacation schedules, instead of a market recap, we’re going to use today’s issue to will take a closer look at an index we’ve introduced a couple of times called CME Group CVOL Indexes.  These proprietary indexes offer a new and unique way to analyze implied volatility in products in most of CME Group’s major asset classes.

Here in the Key Takeaways section, we’ve covered implied volatility in great detail and from many different perspectives.  Generally speaking, implied volatility (IV) is a key indicator of forward risk expectations or, in other words, is the options market consensus of the magnitude of future price movement in the futures market.  As such, IV is an important metric obviously for options traders, but also for futures traders who can use it as another measure of expected price movement. 

One of the key attributes that makes the CVOL measurement of IV unique is that it uses a  simple variance methodology that assigns equal weighting to the IV of strikes across the entire volatility curve (as regular readers know, implied volatility tends to trade a different levels depending on proximity to the at the money strike and across Calls and Puts).  By using the entire volatility curve instead of one particular strike, CVOL indexes provide a very representative measure of the level at which IV is currently trading. 

CME Group currently publishes CVOL levels on products within its Interest Rates, Energy, Metals, FX and Agricultural asset classes.  In addition to CVOL indexes on individual products, CME Group also recently introduced aggregate CVOL indexes in FX, Treasury, Metals, Energy, Commodities and Agricultural asset classes to provide a higher level look at implied volatility on several different products in one asset class with one index level.  For example, the Metals CVOL index is constructed using the CVOL index of Gold, Silver and Copper CVOL Indexes. 

The image below is an excerpt from the CVOL Dashboard and, as you can see on the top, we’ve selected 6 months of Ags data.  Note that there are 8 different products and an aggregate Ag Products on which you can find volatility information including the CVOL level, the daily change (CHG), the five day trend (TREND), the Hi-Lo over the 6 months and further information regarding volatility skew in the remaining columns.  Also, clicking on the graph to the left of the product will bring you to a screen with further historical context of that particular product. 

We encourage all of our In FOCUS readers to explore these new, exciting products here.  

ABOUT THE AUTHOR

Craig Bewick has spent 25 years in futures and options markets, starting at CBOT and CME working in risk management, regulatory, technology, product management and client development. 

Connect with Craig at activetrader@cmegroup.com

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