The Nasdaq is going to be listing a new set of futures: VOLQ
VOLQ is kind of like VXN but there are subtle differences. VOLQ uses the at the money options and VXN incorporates the entire options curve.
Back in the day, before the VIX was a tradable product, the VIX was actually based on the OEX (S&P 100) and consisted primarily of at the money options.
When VIX became a listed product, Goldman Sachs pushed Cboe to make it more like a variance swap which is an over the counter product that banks trade amongst each other.
Variance swaps end up incorporating a lot of skew by the time they settle, thus the ‘new VIX’ incorporated not just at the money options, but also skew. Skew being the price of the out of the money options in relation to the at the money options.
VXN, the VIX of the NDX (the index QQQ is based on) uses this same methodology.
VOLQ uses more of the old methodology, meaning its primary driver is at the money option premium.
VOLQ is going to ‘likely’ have a higher negative correlation to the NDX.
Skew is important.
In the end, I think QQQ traders are far more interested in at the money implied volatility whereas SPX investors care a lot more about the curve.
I could see this product becoming very popular to trade.
One thing that is interesting to watch:
if one runs a VXN-VOLQ comparison graph (because VOLQ use at the money options it is going to tend to be lower) on TOS one can get a pretty easy look at how rich or cheap QQQ skew is thereby signaling buying or selling.
The VIX light is Yellow.
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