Options exchange will publish 'extreme move' index

CHICAGO, Feb. 7, 2011 /PRNewswire/ -- The Chicago Board Options Exchange (CBOE) announced today that on Wednesday, February 23, the Exchange will begin publishing values for the CBOE S&P 500 Skew Index (ticker symbol: SKEW), a benchmark measure of the perceived risk of extreme negative moves — often referred to as "tail risk" or a "black swan" event — in U.S. equity markets.

"We are excited about adding yet another valuable tool to our rapidly growing suite of volatility benchmarks," CBOE Chairman and CEO William J. Brodsky said. "The CBOE S&P 500 Skew Index will join our highly successful CBOE Volatility Index (VIX) in measuring the market's expectation of stock market risk based on S&P 500 options prices. It offers an important new measure for investors who are concerned about potential market moves driven by unusual, high-impact events."

"Innovative measures of risks associated with market events, such as the VIX and now the SKEW, provide investors with powerful tools for understanding equity and derivative markets," said Alexander Matturri, Executive Managing Director at S&P Indices. "The fact that these measures are based on the S&P 500 is recognition of the Index's role in the U.S. equity markets."

The SKEW(SM) and VIX indexes are different, yet complementary measures of risk. The VIX captures the market's expectation of likely daily S&P 500 returns over a 30-day time horizon. Statisticians typically describe these "likely" moves as falling within one standard deviation around the average, or "mean" return of the S&P 500 price distribution. The SKEW describes the tail risk of the distribution, that is, S&P 500 returns that are greater than two to three standard deviations below the mean.

SKEW values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a "black swan" event — an unexpected event of large magnitude and consequence.

For more information on the CBOE S&P 500 Skew Index, including a white paper and volatility values, see www.cboe.com/skew.

The CBOE, known as the home of volatility indexes, currently publishes data on more than a dozen different volatility-related benchmarks and strategies.

CBOE launched two additional initiatives in the volatility space last month:

  • On January 7, CBOE began publishing volatility values on options of five highly active equities: Apple (ticker symbol: VXAPL), Amazon (ticker symbol: VXAZN), IBM (ticker symbol: VXIBM), Google (ticker symbol: VXGOG), and Goldman Sachs (ticker symbol: VXGS). See www.cboe.com/EquityVIX for further information.
  • On January 14, the Exchange launched a web page displaying CBOE Volatility Index (VIX) term structure data, calculated every 15 seconds throughout the trading day. See http://www.cboe.com/data/volatilityindexes/Default.aspx for more information.
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