National Stock Exchange

In Volatility Trading, Accept No Substitute

When it comes to fear gauges, traders will accept no substitutes.

After the Chicago Board Options Exchange Volatility Index, commonly called the market's fear gauge, surged in 2008 amid the height of the financial panic, exchanges all over the world began launching their own volatility indexes. But despite several rather volatile years, the imitators are flopping.Volatility index futures on several European markets have seen sparse volume, while levels of volatility indexes tied to Australian and Indian stock exchanges are being largely ignored by the local trading communities. The Montreal Exchange in Canada shut down its original volatility index, one of the first to spring up after 2008.The upstarts are caught in a vicious cycle: The markets they track have long used the original VIX to help set options prices. The local VIX therefore ends up moving in lock-step with the CBOE's VIX--creating little incentive for traders to use the new index.Further hurting copycats, underlying option...

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