CHICAGO, Oct. 25, 2016 /PRNewswire/ -- Chicago Board Options Exchange® (CBOE®) announced today that it has launched the CBOE S&P 500® Smile Index (Ticker: SMILE), a premium-capture strategy benchmark index based on the steepness of the curve of implied volatilities of S&P 500 Index (SPX) options -- often referred to as the "smile."
The CBOE Smile Index's strategy alternates between selling a strangle (sell put/sell call) when the options smile is steep, and selling a risk reversal (sell put/buy call) when the options smile is relatively flat. Historically, a flatter smile has been associated with market bottoms and suggests a higher probability of a market upturn.
Constructed to perform in both bull and bear markets, the CBOE Smile Index takes its directional cue from the steepness of the smile as gauged by the ratio of put-to-call prices for SPX options, as an alternative to implied volatility.
If the put-to-call ratio is smaller than or equal to 1.5, it suggests a flatter smile and one 25 delta put is sold and one 25 delta call is bought. If the ratio is greater than 1.5, it suggests steepening and a 25 delta call is sold instead. The index is designed to then overlay the 25 delta put and 25 delta call options position with 1-month Treasury bills to collateralize the position. "Delta" is a risk measure commonly used by option traders that compares the potential change in price of the underlying asset with the corresponding change in the price of a derivative.
"Hedge funds, portfolio managers and individuals who trade derivatives products are looking for ways to enhance yields in the current low-interest-rate environment," said Bill Speth, Vice President of Research at CBOE. "The CBOE Smile Index offers these investors another tool to take action based on the current market outlook."
The CBOE Smile Index rolls on every third Friday of each month. So the same position is maintained for a month. Values for the index are expected to be published every 15 seconds and can be accessed on the CBOE website at www.cboe.com/smile.
Since 2002, CBOE has been a worldwide leader in creating benchmark indexes designed to help investors track the performance of investment strategies that use options or volatility products to help manage risk and enhance yield. CBOE currently publishes data on more than 30 strategy performance benchmark indexes, including the CBOE S&P 500 BuyWrite Index (BXM), the CBOE Russell 2000 PutWrite Index (PUTR) and the CBOE VIX Tail Hedge Index (VXTH). Information on all of CBOE's strategy performance benchmark indexes can be found at www.cboe.com/benchmarks.
CBOE, the largest U.S. options exchange and creator of listed options, continues to set the bar for options and volatility trading through product innovation, trading technology and investor education. CBOE Holdings offers equity, index and ETP options, including proprietary products, such as options and futures on the CBOE Volatility Index (VIX Index) and S&P 500 options (SPX), the most active U.S. index option. Other products engineered by CBOE include equity options, security index options, Weeklys options, FLEX options and benchmark products such as the CBOE S&P 500 BuyWrite Index (BXM). CBOE Holdings is home to the world-renowned Options Institute, Livevol options analytics and data tools, and www.cboe.com, the go-to place for options and volatility trading resources.
CBOE®, Chicago Board Options Exchange®, CBOE Volatility Index®, Livevol®, FLEX® and VIX® are registered trademarks, and BuyWriteSM, BXMSM, PutWriteSM, PUTRSM, VXTHSM, WeeklysSM and The Options InstituteSM are service marks of Chicago Board Options Exchange, Incorporated (CBOE). Standard & Poor's®, S&P® and S&P 500® are registered trademarks of Standard & Poor's Financial Services, LLC and have been licensed for use by CBOE. Russell 2000® is a registered trademarks of the Frank Russell Company, used under license. All other trademarks and service marks are the property of their respective owners.
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SOURCE Chicago Board Options Exchange