Russell Index Products
and Listed Options
Tools for Income and Risk Management
September 27, 2007 at the CBOE.
Panel Discussion on
Portfolio Management and the Volatility of Volatility Indexes.
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CBOE Russell 2000 Volatility Index
(RVX) in 2007
Daily Closing Prices
40
RVX rose 39.5% on Feb. 27
37.14 on
Aug. 15
30
20
14.44 on Feb. 21
10
0
03-Jan-07
03-Mar-07
03-May-07
03-Jul-07
03-Sep-07
(Jan. 3, 2007 - Sept. 24, 2007). Sources: CBOE and Bloomberg.
2
RVX and RUT Indexes Since 2004
CBOE Russell 2000
Volatility Index (RVX)
Russell 2000 (RUT)
RUT (right axis)
30
900
Russell 2000 (RUT)
RVX Index
45
700
15
500
RVX (left axis)
0
300
1/30/2004
29-Jul-05
31-Jan-07
Monthly Closing Prices. (Jan. 2004 - Aug. 2007).
Sources: CBOE and Bloomberg.
3
RVX and RUT Indexes in 2007
CBOE Russell 2000
Volatility Index (RVX)
Russell 2000 (RUT)
900
RUT (right axis)
30
800
15
700
RVX (left axis)
0
1/3/2007
3/8/2007
5/10/2007
7/13/2007
Russell 2000 (RUT)
RVX Index
45
600
9/14/2007
Daily Closing Prices. (Jan. 3, 2007 - Sept. 24, 2007). Sources: CBOE and Bloomberg.
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High Volatility of Volatility
Historic Volatility of Daily Returns
for the RVX Index
101.3%
79.8%
61.4%
2004
61.0%
2005
2006
Jan.-Jun07
Sources: CBOE and Bloomberg.
5
Negative Correlations
Correlation of Daily Returns
of RVX and RUT Indexes
-0.72
-0.73
2004
2005
-0.81
-0.86
2006
Jan-Jun07
Sources: CBOE and Bloomberg.
6
Negative Correlation
Bigger Daily Moves in the Opposite Direction
-13.1%
29-Jun-06
3.8%
% Change on 6 Select Days
-15.6%
15-Jun-06
19-Jul-06
3.5%
RVX
3.0%
RUT
-7.1%
16.7%
5-June-06
-3.2%
3-Aug-07
-3.6%
27-Feb-07
-3.8%
14.0%
39.5%
In the period from 2004 through Sept. 14, 2007, the six days
when the Russell 2000 Index (RUT) moved more than 3%.
Sources: CBOE and Bloomberg.
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Select CBOE Options –
Volume and Open Interest
Avg. Daily
Volume
(Aug. 2006)
Avg. Daily
Volume
(Aug. 2007)
%
Change
Open Interest
(Aug. 2007)
Russell
2000 (RUT)
Options
6,318
50,314
696%
1,924,121
iShares
Russell
2000 Index
Fund (IWM)
Options
212,477
464,849
119%
9,950,238
RVX
Futures
(new)
--
444
2004
8
CBOE's Volatility Indexes in 2007
40
Daily Closing Prices
RVX
VXN
30
VIX
VXD
20
10
0
1/3/2007
3/12/2007
5/16/2007
7/23/2007
Sources: CBOE and Bloomberg.
(Jan. 3, 2007 - Sept. 24, 2007)
9
CBOE Russell 2000 BuyWrite Index (BXR)
180
150
120
90
60
30
0
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
(Dec. 2000 - Aug. 2007). Sources: CBOE and Bloomberg.
10
Options Income for BXR Strategy
Monthly Premium on 3rd Friday as a % of Underlying.
5%
Average Amount Was 2% Per Month. Amount Can Be Higher When RVX is High.
4%
3%
2%
1%
0%
Jan-01
Apr-04
Aug-07
(Jan. 2001 - Sept. 2007). Source: CBOE. Please note that on a buywrite strategy an investor can generate options income if the investor
is willing to forego some upside potential in the stock position.
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Options involve risk and are not suitable for all investors. Prior to buying or selling an
option, a person must receive a copy of Characteristics and Risks of Standardized Options,
http://www.cboe.com/Resources/Intro.asp which is available from your broker, by calling 1-888OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL
60606.
The prices for the futures and options on volatility indexes have some unique features; please visit
www.cboe.com/volatility for more details.
The information in these slides is provided solely for general education and information purposes and therefore should not
be considered complete, precise, or current. Past performance is not a guarantee of future returns. Many of the matters
discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional
detail and are subject to changes that may not be reflected in these materials. No statement within these materials should
be construed as a recommendation to buy or sell a security or to provide investment advice. Any strategies discussed,
including examples, do not include commissions, dividends, margin, taxes, and other transaction costs. However, these
costs will affect the outcome of transactions and should be considered. For further information regarding the tax effects of
transactions, consult your tax advisor. Supporting documentation for claims, comparisons, statistics or other technical data
is available by calling 1-888-OPTIONS, sending an e-mail to help@cboe.com, or by visiting www.cboe.com/bxm. LEAPS®,
FLEX®, FLexible EXchange®, CBOE®, and Chicago Board Options Exchange®, are registered trademarks of the Chicago
Board Options Exchange, Inc. Copyright © Chicago Board Options Exchange®, Incorporated, 2007. All Rights Reserved.
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