Dawn Pennington

Oil Volatility Index (OVX) Debuts

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Volatility is often said to be an option trader's best friend or even his or her worst enemy; in either case, you've got to keep a close eye on them so you don't miss a trick. And now, the Chicago Board Options Exchange (CBOE) is introducing another way to measure volatility in a commodity that nearly everyone's got their eye on: crude oil prices.

You can already trade volatility on the S&P 500 (SPX) through the CBOE's Volatility Index (VIX), on the Nasdaq (NASD) via the Nasdaq Volatility Index (VXN) and on the Dow via the Dow Volatility Index (VXD). As of today, however, there is a new kid on the block -- the Oil Volatility Index (OVX) -- bringing the volatility index trio up to a quartet.

The CBOE created the new "Oil VIX" to measure the market's expectation of oil price volatility over the course of the coming 30 days -- just like the VIX, which is also known as a metric of investor fear. According to Reuters, the OVX is based on options trading on the United States Oil Fund L.P. (USO).

Also according to Reuters, the USO "is a commodity pool that invests in oil futures on the New York Mercantile Exchange, options on oil futures and forward contracts. It does not hold shares of individual companies."

For more information about the OVX, read the CBOE's press release here or visit this link to learn more about the USO's role in the OVX.