CBOE to publish values for VIX Tail Hedge index on downward movements

By Jennifer Chiou

New York, July 29 - The Chicago Board Options Exchange announced that it has begun publishing values for the CBOE VIX Tail Hedge index, which is one of the CBOE strategy indexes designed to manage equity risk.

According to an exchange news release, the index tracks the performance of a hypothetical S&P 500 investment portfolio protected against tail risk by using VIX calls, providing investors with a benchmark for VIX-based "tail risk" hedge strategies. Tail risk is the risk of a sudden and steep drop in the S&P, CBOE said.

"CBOE continues to leverage its research and development expertise to further develop the volatility frontier," chairman and chief executive officer William J. Brodsky said in the release.

"The CBOE VIX Tail Hedge index was created by our research team in order to help investors control portfolio risk when unusual, high-impact events are on the horizon. The index also can be used by CBOE and/or licensed to others to create tradable products aimed at hedging tail risk."

The release stated that the number of VIX calls hypothetically purchased each month as part of the CBOE VIX Tail Hedge index strategy will depend on the level of forward volatility.

If forward volatility is very low or very high - outside of the range of 15 to 50 - no VIX calls will be purchased when the VIX options expire and the index rolls to the next month.

The exchange said that the hedge index is the second CBOE index to help investors specifically cope with tail risk in the U.S. equity market.

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