The Chicago Board Options Exchange (CBOE) announced that beginning Monday, July 27, the Exchange will begin publishing intraday data for the CBOE S&P 500 Implied Correlation Index tied to two different option maturities January 2010 (ticker symbol ICJ) and January 2011 (ticker symbol JCJ). CBOE will disseminate ICJ and JCJ values four times per minute during the trading day versus once a day currently.
The CBOE S&P 500 Implied Correlation Index is the first widely disseminated, market-based estimate of the average correlation of the stocks that comprise the S&P 500 Index (SPX). Using SPX options prices, together with the prices of options on the 50 largest stocks in the S&P 500 Index, the CBOE S&P 500 Implied Correlation Index offers insight into the relative cost of SPX options compared to the price of options on individual stocks that comprise the S&P 500.
Combined with the CBOE Volatility Index (VIX) CBOEs widely followed measure of equity market risk the newly expanded calculations on the CBOE S&P 500 Implied Correlation Index will give index and equity options traders, portfolio managers and other asset allocation decision-makers a more complete picture of the options markets assessment of equity risk, says CBOE chairman and CEO William J. Brodsky.
Intuitively, one would expect that the implied volatility of an index option would reflect a corresponding change in the implied volatilities of options on the index components. Yet, there are times when this is not the case. This outcome is often attributed to the index option markets changing views on correlation. For example, from November 20, 2008, through May 29, 2009, the closing value of ICJ ranged from a low of 56.54 on November 21, 2008, to a high of 74.78 on March 20, 2009. During the same time period, the CBOE Volatility Index (VIX) declined significantly from a record-high close of 80.86 on November 20, 2008. Conversely, the ICJ has remained relatively high with a closing value of 58.94 recorded on June 30, 2009, revealing an expectation that equity prices will continue to move together.
D.C.