It was a relatively quiet day in the financial and commodity markets as US Equities ended mixed but little changed as did volatility in CME Group’s equity index options markets. Notably, the US Dollar traded lower against most major currencies while Bitcoin futures prices continued to rise. In the absence of major market price moves, it’s a good opportunity for us to introduce the newest products on which we are calculating a proprietary CVOL level.
In December, CME Group introduced CVOL indexes on six FX products as well as the 10-Year Treasury. Today, we are excited to announce a significant expansion of the CVOL indexes to include 16 different products from 5 different CME Group asset classes. The CVOL index is an innovative way to measure implied volatility that uses a simple variance methodology that assigns an equal weighting to strikes across the entire implied volatility curve. This proprietary methodology produces a more representative measure of the market’s expectation of 30-day forward risk.
In addition to the volatility level, the CVOL index also generates a measure of “skew”, or the relative value of Call versus Put volatility. Finally, the CVOL calculation provides a measure of convexity which is a comparison of the at the money volatility to the CVOL index to give a sense of the volatility “smile” that results from out of the money options typically trading at higher implied volatilities as one moves out the volatility curve.
We’ve included a screenshot of the dashboard below which provides a nice summary of the CVOL levels in the products on which we’re calculating, but would encourage all of our readers to check out the full functionality at www.cmegroup.com/cvol as the picture below doesn’t capture the full power of this new tool. We selected 6 months for the view in the image below. Even in just the dashboard window, you can get an overview of the following:
Again, we are excited about these innovative new volatility measures and encourage all of our In FOCUS readers to check them out.