Options on Cboe Volatility Index (VIX) futures will begin trading on Cboe Futures Exchange (CFE) from 14th October, subject to regulatory approval, Cboe Global Markets has announced.
Cboe’s currently-available securities-based VIX Index options allow investors to manage or gain exposure to US equity market volatility. The new options will perform a similar function, but are based on front-month VIX futures.
As futures are the underlying asset for the options, they will be regulated by the CFTC. This will grant access to a broader range of market participants, Cboe said, who can use the product to express their views on market volatility.
The options will physically settle into front-month VIX futures, Cboe explained, and will grant customers increased choice in expiration dates and allow for more granular hedging strategies. Positions may be hedged using front-month VIX futures and standard VIX Index options, it added. It will only be possible to exercise the options at expiration.
Cboe also plans to launch Cboe S&P 500 Variance futures and Cboe S&P 500 Dispersion Index futures on Cboe Futures Exchange, subject to regulatory approval.
Rob Hocking, head of product innovation at Cboe, commented: “Given the increased trading activity we’re seeing in VIX options and the strong demand for hedging tools this year, we’re 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 US 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, added: “We expect options on VIX futures will complement our existing product suite, appealing to a broad group of users. By listing these options on Cboe’s US futures exchange, CFE’s global network of futures commissions merchants and brokers can trade them using the same connections and memberships already established for trading VIX futures, thereby enhancing ease and accessibility.”
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