Since then, the volatility index has come down in October, but it’s still higher than normal levels, hovering in the high 20s. [Sign up for stock news with our Invested newsletter.]. An investor who follows the VIX will have a better understanding of the volatility environment, which will better enable them to react, or not react, appropriately, says Elizabeth Skettino, options strategist at Wells Fargo Investment Institute in Charlotte, North Carolina. While the company’s P/E is close to 24x now, there is an upside when the current P/E is … Sign up for stock news with our Invested newsletter. These observations can serve as an accessory element in your investment decision-making rather than a determining factor because the VIX could overstate future volatility. Below, we'll talk more about the CBOE and the function it serves for investors looking to broaden their portfolios. Now, we’re more elevated than a typical election cycle where the market is perceiving higher than normal volatility leading up to the election but even higher volatility following the election,” observes Passarelli. CBOE is the abbreviation for the Chicago Board Options Exchange. This exchange holding company, which offers trading and investment solutions for investors, created the CBOE Volatility Index in 1993. Studying the VIX can help investors gauge the level and magnitude of market volatility. Broad index funds like the Fidelity 500 Index Fund ( FXAIX) or the Vanguard 500 Index Fund ( VFINX) provide diversification and offer low fees by tracking the S&P 500. Current higher-than-normal VIX levels are in large part due to being in a year of a contentious presidential election. In March, the VIX experienced a steep spike — reaching its highest level of 82 in mid-March after the S&P sank 12%. When you use them in certain ways, options can be extremely risky, and you can easily lose 100% of your investment with some options strategies. Looking for the definition of CBOE? You can use them to reduce risk rather than amplifying it, and when you do so, the rewards can include steady streams of income, smoother performance from year to year, and the potential for higher returns with lower overall risk. However, options are much more flexible than most investors understand. If the VIX index level is below 12, volatility is said to be reduced. If you haven't considered using options, you should take a closer look at the products the CBOE provides to see if they can help you meet your financial goals. “In 2016, the VIX didn’t rise until a couple of weeks leading up to the election, going from 14 to 27. For instance, when someone sells an option, they are taking on the obligations set forth in the options contract if the buyer eventually chooses to exercise the option. CBOE | Complete Cboe Global Markets Inc. stock news by MarketWatch. Both the iPath S&P 500 VIX Short-term Futures ETN (ticker: VXX) and the ProShares VIX Short-Term Futures ETF ( VIXY), for example, offer exposure to the S&P 500 VIX Short-Term Futures Index, which measures returns of VIX futures contracts within a 30-day maturity. Long-term investors can use the VIX as a measure of fear, says David Russell, vice president of market intelligence at TradeStation in Chicago. Cumulative Growth of a $10,000 Investment in Stock Advisor, What Is the CBOE? Cboe VIX Cboe SPX Cboe Russell 2000 (RUT) Cboe Weeklys Contact Cboe XBT Watch our free webcast, The Volatility Environment, to get the latest views from experts on market volatility and discover how … Stock Advisor launched in February of 2002. LEAPS, or long-term equity anticipation securities, have a much longer time frame than traditional options. The OCC has systems in place to ensure the smooth functioning of the options markets, bringing buyers and sellers together and handling the subsequent transfers of securities or cash between option buyers and sellers at expiration. school officials wants teachers to be ‘1st priority’ for vaccine, Person struck by Metro train at L’Enfant Plaza, Vendors have until February to respond to one of the most complex IT challenges in government history, At nearly a year old the Space Force joins the Intelligence Community, Vendors, consultants describe an increase in ‘bullying’ tactics by GSA to get lower schedule prices, Trump gives most federal employees day off on Christmas Eve. Investors are willing to trade on the CBOE in part because the OCC has a clearing mechanism that protects the options market from systemic risk. 10 Momentum Stocks Millennials Are Buying in Q4. “When we look at the VIX term structure, it’s clear there’s some anxiety built into this election,” he says. Cboe Volatility Index® (VIX®) Options and Futures help you turn volatility to your advantage. But Dan Passarelli, CBOE veteran and president at Market Taker Mentoring in Chicago, says that looking back over the past 10 years, it’s the norm that the VIX rises going into the election. The CBOE utilizes the help of the Options Clearing Corporation to help clear and issue options contracts. See you at the top! With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world. “VIX has been holding firm in the high 20s and the VIX futures curve shows even higher volatility in the post-election period, reflecting the potential for delayed results due to mail in voting,” she says. Dan Caplinger has been a contract writer for the Motley Fool since 2006. Cboe acquired MATCHNow from Virtu Financial, Inc. Cboe Global Markets is an American company that owns the Chicago Board Options Exchange and the stock exchange operator BATS Global Markets. There have been several drivers of market volatility in 2020. @themotleyfool #stocks $CBOE $^GSPC, CBOE Global Markets (CBOE) Q3 2020 Earnings Call Transcript, CBOE Holdings Inc (CBOE) Q2 2020 Earnings Call Transcript, Better Buy: Intercontinental Exchange vs. Cboe Global Markets, Why the Exchanges Could Be a Good Place to Hide During the COVID-19 Crisis, Cboe Global Markets Considers June 1 Reopening of Iconic Chicago Options Trading Floor, Copyright, Trademark and Patent Information. Market data powered by FactSet and Web Financial Group. The Terms and Conditions govern use of … As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. 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