The Source Of The Next Crisis

Authored by Kevin Muir via The Macro Tourist blog,
In 1992, the CBOE hired Robert Whaley to develop a tradeable volatility product on equity index option prices. A year later, in 1993, the VIX was born when the CBOE started publishing real-time quotes on the implied volatility of the calculated S&P 500 index options. In those early days, I very much doubt Robert ever imagined his volatility index would someday be the cornerstone of some of the world’s most actively traded ETFs. In fact, for the next decade, no VIX instruments traded at all, and it wasn’t until 2004 that the VIX future was listed. And then, it took another five years before the first ETF based on those futures hit the exchanges. But what a ride it’s been.
Nowadays, everyone knows the VIX index. It’s no longer some arcane index reserved for derivative traders, but instead a highly liquid, easily traded way to bet on future implied volatility. And I doubt most participants realize that last part. They are not betting on current volatility. They are not betting on future volatility. They are betting on future implied volatility. Remember that point. It’s important. We’ll come back to it later.

This post was published at Zero Hedge on Nov 23, 2017.

 

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