Index Insights: August 2024

August 2024 began with a sharp selloff that saw broad averages tumble nearly 6% in a few tense days as implied volatility surged to levels not seen since 2021. While dramatic, the volatility shock was relatively short-lived with the Cboe Volatility Index^® (VIX^® Index) returning to a 15 handle by mid-month. Additionally, U.S. equity indices regained much of the lost ground by month-end. Overall, the S&P 500 Index^® (SPX^®) finished August up more than 2% at 5,648.40, slightly below the all-time closing high. Following a 10% rise in July, the Russell 2000 Index^® (RUT^®) finished down 1.6% at 2,217.63, 8% off August 5 lows. Remnants of the global selloff may be seen in lower implied correlation, with the Cboe S&P 500 Dispersion Index (DSPX^SM) dropping nearly 6 points, or 20%, to finish the month at 26.93. This decline suggests macro factors may play a larger part in the coming months as traders position themselves for possible Fed moves and the U.S. Presidential election.

Equity Indices

Source: Cboe Global Markets

The Russell 2000 Index (RUT) measures the performance of small-cap segment of the U.S. equity universe. It is a subset of the Russell 3000^® Index and includes approximately 2000 securities based on a combination of their market cap and current index membership. RUT options are valuable tools for increasing yields and managing risk. The Cboe S&P 500 Index option contract (SPX), is designed to track the underlying S&P 500 Index and help investors achieve broad market protection. SPX^® options offer the potential opportunity to manage large-cap U.S. equity exposure and execute risk management, hedging, asset allocation, and income generation strategies.

Volatility Indices

Source: Cboe Global Markets

The VIX Index is based on real-time prices of options on the S&P 500^® Index (SPX) and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility. Cboe 1-Day Volatility Index® (VIX1D Index) estimates expected volatility by aggregating the weighted prices of P.M.-settled S&P 500 Index (SPX) puts and calls over a wide range of strike prices. The Cboe 3-Month Volatility IndexSM (VIX3M) is designed to be a constant measure of 3-month implied volatility of the S&P 500^® (SPX) Index options.

Dispersion and Correlation Indices

Source: Cboe Global Markets

The Cboe S&P 500 Dispersion Index (DSPX) measures the expected dispersion in the S&P 500 Index over the next 30 calendar days, as calculated from the prices of S&P 500 Index options and the prices of single stock options of selected S&P 500 Index constituents, using a modified version of the VIX® methodology. The Cboe S&P 500 Implied Correlation Indices including COR1M and COR6M are the first widely disseminated market estimates of the average correlation of the stocks that comprise the S&P 500. The Cboe S&P 500 Implied Correlation Indexes offers insight into the relative cost of SPX options compared to the price of options on individual stocks that comprise the S&P 500.

BuyWrite Indices – Equity

Source: Cboe Global Markets

The Cboe® MSCI Emerging Markets BuyWrite^SM Index (BXEF^SM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the MXEF® index. The Cboe S&P 500 BuyWrite Index (BXM^SM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index®. The Cboe S&P 500 Half BuyWrite Index (BXMH^SM) is a benchmark index designed to track the performance of a hypothetical covered call strategy. The BXMH Index is similar in design to the Cboe S&P 500 BuyWrite Index (BXM). However, the difference in methodology is as follows: the strategy only writes half a unit of an ATM monthly SPX call option while the long SPX Index position remains unchanged. The Cboe Validus S&P 500® Dynamic Call BuyWriteSM Index (CALD) tracks the value of a hypothetical rules-based investment strategy which consists of overlaying a basket of S&P 500 a.m.-settled standard expiry short call options over a long position invested in the S&P 500 with dividends reinvested (total return).

PutWrite Indices

Source: Cboe Global Markets

The Cboe S&P 500 PutWrite^SM Index (PUT^SM) tracks the value of a hypothetical portfolio of securities (PUT portfolio) that yields a buffered exposure to S&P 500 stock returns. The PUT portfolio is composed of one- and three-month Treasury bills and of a short position in at-the-money put options on the S&P 500 index (SPX puts). The number of puts sold is selected to ensure that the value of the portfolio does not become negative when the portfolio is rebalanced. The Cboe Validus S&P 500 Dynamic PutWrite Index (PUTD^SM) is designed to track the value of a rule-based investment strategy which consists of overlaying a basket of S&P 500 (SPX) a.m. settled standard-expiry short put options over a money market account invested at the 4-week daily Treasury Bill rate. The Cboe Russell 2000 PutWrite Index (PUTR^SM) tracks the value of a hypothetical portfolio of securities (PUTR portfolio) that yields a buffered exposure to Russell 2000 Index stock returns. The PUTR portfolio is composed of an investment of $K in one-month Treasury bills and of a short position in an at-the-money puts on the Russell 2000 Index (RUT put), where K is the strike price of the put option.

BuyWrite Indices – Fixed Income

Source: Cboe Global Markets

The Cboe HYG BuyWrite Index (BXHB^SM) is designed to track the performance of a covered call strategy with a short iShares iBoxx $ High Yield Corporate Bond ETF (HYG) call option expiring monthly. The Cboe LQD BuyWrite Index (BXLB^SM) is designed to track the performance of a covered call strategy with a short iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) Call option expiring monthly. The Cboe TLT 2% OTM BuyWrite Index (BXTB^SM) is designed to track the performance of a covered call strategy with a short iShares 20+ Year Treasury Bond ETF (TLT) Call option expiring monthly.

Target Outcome Series

Source: Cboe Global Markets

The Cboe S&P 500 Enhanced Growth Index Series (SPEN^SM) and Cboe S&P 500 Buffer Protect Index Series (SPRO^SM) are part of a family of Target Outcome Indices. The Indices are designed to provide target outcome returns linked to the U.S. domestic stock market. The indices measure the performance of a portfolio of hypothetical exchange traded Flexible Exchange® Options ("FLEX® Options") that are based on the S&P 500® Index.

Protective Put Indices

Source: Cboe Global Markets

The Cboe VIX Tail Hedge Index (VXTH^SM) tracks the performance of a hypothetical portfolio that:

• Buys and holds the performance of the S&P 500 index (the total return index, with dividends reinvested), and
• Buys one-month 30-delta call options on the Cboe Volatility Index® (VIX® Index). New VIX calls are purchased monthly, a procedure known as the "roll." The weight of the VIX calls in the portfolio varies at each roll and depends on the forward value of VIX, an indicator for the perceived probability of a "swan event."
• The weights are determined according to this schedule and the weights applied at a particular roll date can be seen by opening the VXTH Monthly Roll Spreadsheet.

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