Unlocking the Secrets of the CBOE Eurocurrency Volatility Index
Using the CBOE Eurocurrency Volatility Index, known as the EVZ, is a common way to trade the futures markets. But before you start using this method, it’s a good idea to understand how the index works.
Understanding the CBOE Eurocurrency Volatility Index (EVZ)
The CBOE Eurocurrency Volatility Index (EVZ) is one of the many volatility indices. It’s a measure of the expected volatility of the CurrencyShares Euro Trust’s 10-Year Treasury Note futures.
In 2003, CBOE changed the calculation of the VIX. Prior to this change, the index was derived from the prices of CBOE S&P 100 Index options with near-term expiration dates. Changing to weekly SPX options made the calculation more precise.
The CBOE EVZ uses options from a wide variety of strike prices. This means that the index’s most impressive feature is not so much the price itself. But the amount of time it takes for the index to move up or down by a certain percentage point.
Another important factor to keep in mind is that this index is not an indicator of underlying market volatility. While the index itself does measure the movement of a Euro/Dollar exchange rate, the index does not measure the degree of price variation in the financial assets that are the basis for this index.
For that reason, the OVX is the logical successor to the CBOE EVZ. Using a different methodology, the index does measure the magnitude of the most significant changes in the EUR/USD exchange rate.
The CBOE EFA ETF Volatility Index measures the expected volatility of the iShares MSCI EAFE Index Fund. Also known as the iShares MSCI EAFE Fund, this fund focuses on developed markets in Asia, Europe, and Australia.
Futures trading with the CBOE Eurocurrency Volatility Index (EVZ)
There are a number of ways to track volatility in the stock market. One of the most popular options is the VIX Index. Developed by the Chicago Board Options Exchange, the index is designed to provide a real-time assessment of the level of stress in the market.
The VIX is calculated through the use of option prices for the S&P 100 Index. As the index rises, the market will tend to go down. Conversely, when the market becomes less anxious, the VIX will decline. Traders can use the index as a guide to gauge sentiment and take advantage of opportunities to make money.
While the VIX index can be used to manage risk, traders can also invest in volatility index ETPs to diversify their portfolios. These products offer new opportunities to trade in volatility.
CBOE created the first VIX index futures contract in 2004. Today, the product is traded on several platforms across the globe.
The most widely traded VIX index futures are the weekly options. They expire on Wednesdays. Usually, they are listed on Thursdays. Traders can also speculate on the movement of the VIX through options that are traded monthly.
In addition to the futures, there are also exchange-traded notes (ETNs) and VIX exchange-traded funds (ETFs). These ETPs don’t directly track the VIX Index, but they do reflect the futures contracts on the index.
Common trading strategies with the CBOE Eurocurrency Volatility Index (EVZ)
When it comes to trading volatility, it’s a good idea to look into the CBOE Eurocurrency Volatility Index (EVZ). This index, a recent addition to the options market, combines a wide range of strike prices to give investors a more accurate picture of the near-term volatility of the EUR/USD.
Aside from the CBOE EVZ, there are other options available for hedging and directional plays. The CBOE Gold ETF (GVZ) is another option available to traders looking to profit from the rising price of gold.
The EVZ is a derivative product of the CBOE Holdings, Inc. (CBOE) corporation, which is the largest options exchange in the U.S. It is a benchmark product for the rest of the market. Similarly, the LEAPS (long-only equity options) and FLEAPS (futures and options) are other examples of the company’s offerings.
While the CBOE EVZ does not boast a large number of years of historical data, the EVZ has a useful history of its own. Using a sample period that ranges from January 2, 2009, to December 28, 2018, EVZ offers 2354 daily observations.
One of the most important innovations to hit the markets has been the advent of volatility-based securities. These securities have become a staple in many trading strategies. They are an excellent way to manage risk while offering a degree of protection.
