Platinum Tools: Viewing the a Stocks VIX with Implied Volatility Charts
July 3, 2009
Many traders look at the CBOE Implied Volatility Index (VIX) and the CBOE Nasdaq-100 Volatility IndexSM (VXN) to gauge fear in the market. The VIX and VXN use implied volatility values from select S&P 500 Index (SPX) options and Nasdaq-100 Index (NDX) options, respectively, to create 30-day expected volatility measures for each underlying index. They are also seen as sentiment gauges for the overall market. Keep in mind, however, that similar to price, implied volatility levels for a stock can be different from either the SPX or NDX.
While the VIX provides information about broad market sentiment, Platinum users also have access to “VIX-like” tool using implied volatility [IV] data. In addition to viewing IV charts in Platinum, traders can download the measure for different securities to identify specific extreme values or to extend VIX logic on an individual security basis. This includes individual stocks and exchange-traded funds [ETFs].
The closing price and IV data that follows was downloaded from Platinum by completing the following steps:
- Go to the Option Data menu item and select Option Data Tables
- Enter the security of interest in the “Symbol” field
- Identify the number of days for which you seek data in the “Number of Stock Days” field
- Check the “Show table Comma Delimited” box
- Go back to the top and click on “Update”
- Click on the Excel File Download link
The user can then open the Excel file or save it to their computer. The file may actually open as a text file, which can be immediately saved as an Excel file type instead. If you elect to save the file instead, you may need to convert the file when opening by making the following selections in the dialog boxes: Delimited, Comma, Finish.
The charts provided below were created by downloading 300 days worth of data for Exxon Mobil (XOM), JP Morgan Chase (JPM) and SPY, the Standard & Poor’s Depository ReceiptsTM (SPDR) which tracks the S&P 500 Index (SPX). Closing VIX data was downloaded from Worden Brothers’ TC2007 software.
Platinum Charts
As a quick review, Platinum chart tools provide users with statistical and implied volatility charts, along with other price and option data. The flexible settings allow traders to view both varied time frames and different look back periods for those time frames. For instance, a two year statistical volatility chart can be displayed with a 6-day, 10-day, etc. rolling view of that measure. The settings can be changed globally through the General Settings option from the Settings menu or on an individual chart basis.
The implied volatility data from Platinum includes four distinct option expiration periods, including:
- 7 – 30 day
- 30 – 60 day
- 60 – 90 day and
- 90 day.
Collectively, data is also available using a 7 – 149 day period.
A chart the based on the pure VIX calculation will display higher values for each data point because the index construction uses near term and next term options that are out-of-the-money [OTM] and based on a forward index level (for more information see the CBOE VIX white paper from the exchange’s web site). Platinum IV charts use an average value calculated from at-the-money [ATM] options for the underlying security resulting in slightly lower values.
Visual View
The security VIX for XOM, JOM and SPY appear below as Figures 1 – 3, respectively. The true VIX from the CBOE was included as an overlay chart in each, along with the security’s price data for the period. XOM was selected because it was the largest SPX component by market capitalization (5.0%) as of December 31st, 2008, and JPM was selected because it was the largest SPX component in the financial sector (1.45%) for the same period.
Figure 1: XOM “VIX” Using Platinum IV Data
Figure 2: JPM “VIX” Using Platinum IV Data
XOM IV closely tracks the VIX with some additional volatility during the highly speculative period for energy in the spring of 2008 through the fall. Throughout the entire period displayed, JPM’s volatility reflects the uncertainty and fear existing in the financial sector.
Figure 3 for SPY displays expectations for slightly lower IV levels due to the options selected for the measure (includes OTM for the VIX).
Figure 3: SPY “VIX” Using Platinum IV Data
While all IVs appear to be at relatively low levels, traders should look out two years to view longer-term norms. Checking relative IV levels helps with strategy selection while using extremes can be used as a sentiment tool to identify potential reversals for the underlying.
To access other articles written by Clare White, please click here.
Clare White, CMT
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site
Questions for Clare? Please visit "Ask the Traders" through the discussion board on the Optionetics.com home page.
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