Unlocking the secrets of the VOLI Index

In the ever-evolving world of finance, investors are constantly on the lookout for tools that can give them a competitive edge. One such tool that has gained attention in recent years is the VOLI index, a hidden gem that, if understood and used correctly, can open doors to new opportunities for financial gain. In this article, we will explore the intricacies of the VOLI index, how it differs from the more familiar VIX, and how investors can use its power to their advantage.

What is the VOLI Index?

The Nations Large Cap VolDex Implied Volatility Index, known as VOLI, represents a significant breakthrough in the measurement of large cap equity index implied volatility. It goes beyond traditional methods to provide a more accurate and insightful view of market sentiment and expectations for the next 30 calendar days. In this article, we explore what the VOLI index is and why it matters in the world of finance.

At its core, VOLI is designed to capture the implied volatility of large-cap stocks, which is closely aligned with how practitioners analyse market dynamics. What sets VOLI apart is its exclusive focus on at-the-money options, which are central to assessing market expectations. By focusing on these options, VOLI dissects the nuances of volatility skew, allowing market participants to gain a clearer perspective on risk perception.

How is the VOLI calculated?

The VOLI is a beacon of light for investors seeking a reliable insight into market volatility. It provides a measure of expectations for market volatility over the next 30 calendar days, derived from options on SPY, one of the world’s most liquid products. The focus on at-the-money options within VOLI underlines the importance of clear market expectations, making it an invaluable tool for investors and traders. In addition, VOLI is continuously calculated and disseminated throughout the trading day, making it easily accessible to financial professionals through various data providers.

The power of VOLI is harnessed through its underlying asset, SPY, the S&P 500 Exchange Traded Fund. SPY options are known for their liquidity, trading on numerous exchanges. This translates into tighter bid/ask spreads, often as much as 80% tighter in terms of implied volatility, compared to publicly disseminated bid/ask spreads for SPX options that make up the VIX. As a result, VOLI provides a more accurate measure of expectations for future volatility, giving investors a critical edge in their decision-making process.

What is the difference between VOLI and VIX?

The VOLI’s exclusive focus on at-the-money options sets it apart from other measures of implied volatility such as the VIX. By focusing on these key options, VOLI avoids the pitfalls of including a large number of options, many of which trade infrequently or are significantly out of the money. This in turn reduces the value of the resulting measure and creates misleading statistical noise.

In conclusion, the VOLI index is a remarkable tool for market participants, providing a more accurate and actionable measure of implied volatility in large-cap stocks. With a focus on at-the-money options and a robust construction methodology, VOLI provides investors with the insight they need to make informed decisions in the ever-changing world of finance. Understanding VOLI’s unique approach and the benefits it offers is a crucial step towards financial success.

Are there other useful volatility indices like VOLI?

In addition to VOLI, Nations Indexes offers a range of volatility indices designed to provide even deeper insight into market dynamics. TailDex (ticker TDEX) and SkewDex (ticker SDEX) offer unique perspectives by measuring the cost of deep out-of-the-money SPY puts and the degree of put skew in the SPY options market, respectively.