The CBOE Amazon VIX Index, also known as the VAmazon Index, is a volatility index created by the Chicago Board Options Exchange (CBOE) in partnership with Amazon. The index measures the expected volatility of Amazon’s stock price, based on options prices of Amazon’s shares. It is similar to the well-known CBOE Volatility Index (VIX), which measures the expected volatility of the broader market.
Understanding Volatility Index
Volatility refers to the degree of variation of a stock’s price over time. A high degree of volatility indicates that the stock’s price is fluctuating rapidly, while a low degree of volatility indicates that the stock’s price is relatively stable. Investors use volatility indices to measure the expected level of volatility in a stock or the broader market.
The VIX, for example, is a widely used volatility index that tracks the expected volatility of the S&P 500 index” data-wpil-keyword-link=”linked”>S&P 500 index. It is often referred to as the “fear gauge” because it tends to rise when there is uncertainty or fear in the market.
The VAmazon Index is similar in concept but is specific to Amazon’s stock. It measures the expected volatility of Amazon’s stock price over the next 30 days.
Calculating VAmazon Index
The VAmazon Index is calculated using options prices of Amazon’s shares. Options are contracts that give investors the right to buy or sell a stock at a certain price, known as the strike price, within a specified time frame. The price of an option reflects the market’s expectation of the stock’s future price.
The CBOE uses a mathematical formula to calculate the VAmazon Index based on the prices of Amazon’s options. The formula takes into account the implied volatility of a range of options with different strike prices and expiration dates.
The VAmazon Index is expressed as a percentage, representing the expected annualized change in Amazon’s stock price over the next 30 days. For example, if the VAmazon Index is 30%, it means that the market expects Amazon’s stock price to change by 30% (either up or down) over the next year.
Significance of VAmazon Index
The VAmazon Index is significant because it provides investors with an insight into the market’s expectations of Amazon’s stock price over the short term. It can be used as a gauge of investor sentiment towards Amazon and its prospects.
For example, if the VAmazon Index is high, it indicates that the market expects Amazon’s stock price to be highly volatile over the next 30 days, which could be due to upcoming events such as earnings announcements, product launches, or regulatory changes. In contrast, a low VAmazon Index suggests that the market expects Amazon’s stock price to be relatively stable over the next 30 days.
Investors can use the VAmazon Index to manage risk in their portfolios by adjusting their exposure to Amazon’s stock based on the level of expected volatility. For example, if the VAmazon Index is high, investors may reduce their exposure to Amazon to avoid potential losses from a highly volatile stock price.
The CBOE Amazon VIX Index, or VAmazon Index, is a volatility index that measures the expected volatility of Amazon’s stock price over the next 30 days. It is calculated using options prices of Amazon’s shares and is significant because it provides investors with an insight into the market’s expectations of Amazon’s stock price. Investors can use the VAmazon Index to manage risk in their portfolios by adjusting their exposure to Amazon based on the level of expected volatility.