AUS
NZ
UK
CA
USA
IND
Source: Joyseulayu, Shutterstock
Equity market's fear gauge VIX or Chicago Board Options Exchange (CBOE) Volatility Index soared over 41 per cent premarket, at 7 AM ET on Friday, February 26. Panic among investors fearing a market crash is pushing the volatility index up.
North American stock markets traded in red on Thursday amid the ongoing inflation concern and rising bond yields. All US-based indices were down more than two per cent. The tech-heavy NASDAQ tumbled over 3.5 per cent. The S&P/TSX Composite Index was down as much as 2.65 per cent.
VIX follows a quantitative approach to gauge the market’s outlook for future volatility. It moves according to the prices of options on the S&P 500 index.
Earlier, we discussed if stock markets heading for another crash? While it is certainly an unpredictable phenomenon, and in some stances, investors did misinterpret a market correction to a market meltdown and begin panic sell-off.
Wall Street analysts have been call it a buy time or ‘sale day’. As market anxiety peaks, stocks prices drop heavily, indicating a volatility. During such times, investors are on the hunt for undervalued stocks with plunging prices but intact fundamentals. These stocks jump back sharply after the volatility subsides.
The current rising VIX index might help correct the ongoing market trends where traders are investing more in growth stocks than value stocks. This rotational change may not lead stock markets towards crash. However, some analysts continue to exercise caution before investing in growth stocks.
Image Source: Kalkine Group @2021
Do we have a VIX index for the Toronto Stock Exchange?
The S&P/TSX 60 VIX Index was there till January 22, 2020. The volatility index for the Canadian stock market was decommissioned by the TMX Group in January 2020.
The S&P/TSX 60 VIX used to calculate the 30-day volatility of the Canadian equity market by tracking the S&P/TSX 60 Index Options (SXO) as the fundamental tool.
Chicago Board Options Exchange’s VIX
The Chicago Board Options Exchange launched the VIX volatility index in 1993 to inform investors and retail traders about the level of expected volatility in the stock market options.
In 2003, the measurement method of the VIX was amended to utilize the additional liquid options on the S&P 500.
In 2004, the exchange instituted futures contracts on the VIX. The VIX futures’ calculations are cash-based and tracks the difference between the exchange-traded price and the settlement price of the index at market close.
