Changes to the VIX and VXN

[kargoyle]

As of 9/22, the CBOE will change the calculation by which the VIX is done based on the SP500 instead of the OEX. The old VIX calculation will be listed under a new symbol VXO.

My attempts to get a proper response from tech support regarding this change have thus far been a waste of time.

The CBOE has recreated the historical data for the new VIX calculation, yet it seems esignal seems not to care to contact the CBOE or create a new VXO symbol and transfer the old VIX historical data to the VXO symbol.

This means I will not know the support and resistance levels for the new VIX, but I will not know what the old VIX is altogether.

In other words esignal will be knowingly providing incorrect historical data becuase they are too inflexible to incorparate changes to the VIX by the CBOE.

I need some help or I am terminating my subscription. Imagine what their corporate accounts must think!

mad: mad: mad: mad: mad: mad:

Here is the site with the White Paper:

http://www.cboe.com/micro/vix/method.asp:

[kargoyle]

http://www.cboe.com/micro/vix/method.asp

[kargoyle]

To the moderators. Do you get to change the name of my thread if it is critical of esignal?

[ACM]

kargoyle

<snip>yet it seems esignal seems not to care to contact the CBOE or create a new VXO symbol and transfer the old VIX historical data to the VXO symbol<snip>
<snip>In other words esignal will be knowingly providing incorrect historical data becuase they are too inflexible to incorparate changes to the VIX by the CBOE<snip>

Do you know the above for a fact?
With all due respect I think you are making a lot of assumptions and jumping to conclusions somewhat ahead of time.
Instead it might be worthwhile to look at what eSignal has done in the past under similar circumstances. I am referring specifically to the recalculation of the $NYA index happened at the end of last year.
At that time eSignal saved all the old data with the a different symbol and used the historical data supplied by the NYSE itself to backfill the recomputed index ie the "new" $NYA.
I am not suggesting that this will happen just as seamlessly also this time because I do not work for eSignal and I simply don't know that. However I do know that I would give them at the very least the benefit of the doubt before getting all worked up and being mad about something that has yet to happen.

Alex

[JayF]

To summarize our current plan for the changes happening at the CBOE...

1. On Friday, 9/19, we will move the historical data from $VIX to $VXO.
2. We are tentatively looking at importing the historical data for the new VIX and VXN from CBOE's website to our history server on the same day. At this time, I cannot guarantee this will happen on exactly that day, but we will try to reach this goal.
3. $VIX and $VXN will begin updating with the new calculation on Monday, 9/22, and $VXO will update with the old VIX calculation.

[kargoyle]

Hey Alex,

I have been in contact with esignal for several weeks concerning this matter. The responses I received from them have been, well, non-responsive. They have not even told me they are aware of the changes to the VIX and the VXN.

esignal provides an excellent service. And all things considered I would recommend them to anyone seeking realtime data.

I use this data to trade my own money. This is why I am "worked up". This greatly affects what I do and how I do it.

Anyone that understands the VIX formulation as I do would know these changes to the VIX are extraordinary. The CBOE is using a new pricing model and a completely new formula to calculate the VIX. And to continue the old formulation the old VIX is now being moved to the VXO.

Like you I pay them for this service, and it is excellent, but when an exchange changes an important indice such as the VIX, as their customer I expect esignal to conform to this change.

[kargoyle]

Thank you JayF. I appreciate your attention given this matter.

[fabrizio]

I need some help or I am terminating my subscription. Imagine what their corporate accounts must think!

mad: mad: mad: mad: mad: mad

kargoyle

Are you going in overtrading?
As a Christian I am seriously concerned for your sake.
Please come down.

[gspiker]

Hi kargoyle,

I haven't followed the link you posted yet, but I do have a question for you. Do you think the new calculations will allow similar signals to be given as the old VIX and VIXN calc's did, or are they too different? If similar - which do you feel will give cleaner signals?

I plan on reading up on ths later today, but was interested in your thoughts...

Thanks,

G

[kargoyle]

Thanks for your concern Fabrizio.

I am not overtrading.

The VIX is a critical part of my trading strategy. I understand the actual formula used to calculate the VIX from Whaley's White paper of Feb 4, 2002. I also understand the new formula from the CBOEs White paper and the new VIX is totally different than its old calculation. The two do not remotely resemble each other in either their methodolgy and formula derived from the two methodologies.

As such, support and resistance will be changed in the VIX. Old support and resistance levels will be shown in the VXO.

Since I make decisions using my money based on data provided me by esignal, I have a right to get upset when my information decreases and my risk increases.

Now remember I had been in contact long before this post concerning this matter. My disgruntled post was a reflection of the lack of understanding by esignal as to the magnitude of the change.

[fabrizio]

kargoyle

In specific , what is your opinion regarding the choiche of using only options with non zero bid prices ?
will it be more or less influential for the Index as well as the choice to select OOTM put options with a Strike <K at 0 and call with a strike >K at 0?

Your support for elaborate the concept is highly appreciated.

Thanks a lot!

Fabrizio

[kargoyle]

Hey G,

The new VIX will resemble the old VIX in its regression pattern. By that I mean that the new VIX when compared to the old VIX will have the same historically statistcal smoothness.

The first thing to note is that the new VIX will based on the S&P 500 options, the SPX, not the S&P 100 options, the OEX.

The CBOE is no longer using the Black/Scholes model.

The new VIX takes in to consideration not only the front month/next month at the money puts and calls as the old VIX did but it will also take into consideration all puts and calls that have a non-zero bid. Now, the number of options used in the calculation could vary not only from month to month but from week to week and day to day.

The VXN will change altogehter. The CBOE will not even calculate it under a new symbol.

So, which is better? I do not know at this time. This was another reason I got upset. I would not be able to answer this question without seeing both.

My initial guess is that the new VIX will be a better indicator of volatility because of its higher option volume and the fact it looks at 500 stocks instead of 100 stocks

[kargoyle]

Hey Fabrizio,

I like the new changes that include non-zero bid options.

I believe the effect could well be very dramatic. The use of all 500 stocks and the use of all non-zero bid options should make it much more sensitive to moves in the index especially those moves in higher beta stocks listed in the index.

Because these moves may be more sensitive, it may cause one's rethinking of trading OTM puts and calls. In fact, based on my trading strategies, it may force me to trade further out of the money than I am at this point if the trend is very stong in one particular direction, due not to the premium but due to the velocity of the VIX-up or down.

One other considertion I am going to watch for is to see if low volatility actually represents so-called "complacency". If there is a strong move down in the new VIX, this may not represent that a sell off is at hand. It may represent that the bullish trend is still intact. Would that not be an interesting twist?

[fabrizio]

kargoyle

Many Thanks, I appreciated your point of view!

Fabrizio

[gspiker]

Thanks kargoyle, it will be interesting to see what comes out of this.

Garth