Derivatives and securities exchange network Cboe Global Markets, Inc and S&P Dow Jones Indices (S&P DJI) today announced plans to launch the Cboe S&P 500 Constituent Volatility Index (VIXEQ Index), calculated by Cboe Global Indices.
Using an adaptation of Cboe’s proprietary VIX Index methodology, the VIXEQ Index is designed to measure the market cap weighted 30-day implied volatility of a basket of S&P 500 constituents, as represented by the Cboe S&P 500 Dispersion Basket Index (DSPBX Index).
Cboe and S&P DJI launched the Cboe S&P 500 Dispersion Index (DSPX Index) in September 2023 to provide the market a measure of expected dispersion in the S&P 500 Index over the next 30 calendar days. The DSPX Index is designed to give investors a view of S&P 500 Index moves relative to its constituent companies, providing investors with visibility into potential opportunities for portfolio diversification. The DSPX Index calculation is derived from prices of S&P 500 Index options and the single stock options of the S&P 500 Index’s constituent companies.
The VIXEQ Index, which is expected to launch Monday, November 4, follows the launch of the DSPX Index and is developed based on the DSPBX Index. The DSPBX Index provides the representative universe of large-cap U.S. equities conducive to the DSPX Index calculation.
“Since providing the industry with a first-of-its-kind forward-looking dispersion measure last year, Cboe and S&P Dow Jones Indices have been working to provide more insight into the relationship between the S&P 500 Index and single stock volatility, while expanding the utility of our implied dispersion indices,” said Rob Hocking, Head of Product Innovation at Cboe. “When referenced alongside Cboe’s volatility index suite, including our VIX Index and DSPX Index, the VIXEQ Index can help investors better understand dispersion opportunities and market volatility expectations. Cboe continues to strive to provide market participants the tools and measures needed in an evolving market.”
While the VIX Index measures implied volatility by using SPX options prices, the VIXEQ Index will be based on single stock options prices. For each eligible S&P 500 constituent, as determined by the DSPBX Index, a VIX-like calculation is performed, and the results are then weighted by their market cap in the DSPBX Index. The market cap weighted equity variance calculations are summed and converted to the VIXEQ Index value.
“As an index provider, S&P DJI is dedicated to continuing to establish standards that help market participants understand and measure volatility,” said Tim Brennan, Global Head of Capital Markets at S&P DJI. “We expect VIXEQ to provide a more refined glimpse into the volatility of the individual constituents within the world’s most liquid equity benchmark. This latest collaboration between S&P DJI and Cboe speaks to the importance and acceptance of volatility tools more broadly and continues to underscore the S&P 500’s ongoing strength as the best single gauge of the U.S. equity market.”
Following its launch, the daily value of the VIXEQ Index is expected to be found at the Cboe Global Indices Feed and data vendors under the ticker VIXEQ. The VIXEQ Index adds to Cboe Global Indices’ derivatives-based index offerings.
Cboe Labs, the company’s innovation arm, plans to introduce more new products in the volatility space including developing a futures product on the DSPX Index to be listed on Cboe Futures Exchange (CFE), subject to regulatory review. The planned launch of DSPX Index futures may enable investors to manage their exposure and express views on the implied dispersion for the S&P 500 Index, or transfer risk between SPX options and options based on the underlying S&P 500 Index constituents.
