Cboe is eyeing the launch of options on Cboe Volatility Index (VIX) futures, with plans to begin trading on Cboe Futures Exchange, LLC (CFE) on October 14.
Listed on front-month VIX futures, VX’s options-on-future structure is designed to offer a new way to manage market volatility as Cboe expands its VIX complex to address global demand for hedging tools.
Options on VIX futures are based on front-month VIX futures
The new options on VIX futures (VX) will provide similar utility to securities-based VIX Index options, which allow investors to manage or gain exposure to broad U.S. equity market volatility.
The difference is that options on VIX futures are based on front-month VIX futures. With futures as the underlying asset, these options will be CFTC-regulated, enabling a wide array of market participants that are restricted from accessing U.S. securities-based options to use this product to express their views on equity market volatility.
Options on VIX futures will be European-style (can only be exercised at expiration) and will physically settle into front-month VIX futures. The new options are expected to complement the existing VIX Index options, providing customers with more choice in expiration dates and enabling more granular hedging strategies. Users of options on VIX futures may be able to hedge those positions using front-month VIX futures and standard VIX Index options.
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The new options on VIX futures will be exclusively listed and traded on CFE, joining other prominent volatility products, such as Cboe Volatility Index (VIX) futures and the planned launches of Cboe S&P 500 Variance (VA) futures and Cboe S&P 500 Dispersion Index (DSPX) futures.
“With the U.S. election quickly approaching…”
Rob Hocking, Head of Product Innovation at Cboe, said: “As the pioneer in volatility trading, Cboe continues to expand its VIX complex with additional products and services targeted at helping market participants better manage portfolio risk and trade volatility. Given the increased trading activity we’re seeing in VIX options and the strong demand for hedging tools this year, we’re especially excited to expand our volatility toolkit to include these new options on VIX futures and our planned relaunch of variance futures coming in late September. With the U.S. election quickly approaching, which has historically been a meaningful volatility catalyst for markets, we expect these tools will help meet customer demand to effectively manage risk.”
Catherine Clay, Head of Global Derivatives at Cboe, commented: “We expect options on VIX futures will complement our existing product suite, appealing to a broad group of users, including Commodity Trading Advisors, customers of Futures Commission Merchants, and market participants currently active in VIX exchange-traded products and in Cboe’s SPX option and VIX product ecosystems. By listing these options on Cboe’s U.S. futures exchange, CFE’s global network of FCMs and brokers can trade them using the same connections and memberships already established for trading VIX futures, thereby enhancing ease and accessibility.”
