NEW YORK (TheStreet) -- Volatility soared in October as the CBOE Volatility Index (VIX.X) jumped from $14 to $30 in a matter of days. Since then, however, the index has dropped, now trading around $13.50.
So was the volatility spike a one-and-done event, or is there more to come? In the long term there will be more, according to Terry Duffy, president and chairman of CME Group (CME) .
Volatility is near all-time lows, while the stock market is at all-time highs and interest rates are at all-time lows. Any time assets are near all-time highs or all-time lows, investors' portfolios become more susceptible to risk, he explained.
Volatility is just one factor of that risk, and given all of the geopolitical unrest in the world -- combined with the price action of other assets -- it's unlikely to stay near its all-time lows forever.
CME Group CME data by YCharts
Interest rate products continue to do well, in part because investors believe that rates will eventually increase. For that reason, Duffy says investors prefer to hedge their exposure to that move, which is good for CME Group and the interest rate products it offers.
That's a similar story for volatility products. Currently, the company has 105 million open contracts in these products. If that figure were to drop too significantly, then an argument could be made that we may see lower volatility for quite some time to come, he said.
Despite other over-the-counter products being listed for investors, CME Group is able to attract and retain its customers because of its deep liquidity and low pricing, Duffy said, adding there's a reason the company has been around for 170 years and handles three billion contracts per year, worth an average total of $1 quadrillion.
-- Written by Bret Kenwell