Cboe Global Markets is set to expand its volatility product suite with the introduction of new options on the Cboe Volatility Index (VIX) futures, slated to begin trading on the Cboe Futures Exchange (CFE) on October 14. This innovative offering aims to provide investors with additional tools for managing volatility in the U.S. equity markets.
Enhancing Risk Management Capabilities
The new options on VIX futures are designed to complement Cboe’s existing securities-based VIX index options, which have long been used for risk management and yield enhancement. This latest product will utilize an option-on-future structure, potentially opening the doors for more market participants to engage with VIX options, including those who may be restricted from accessing securities-based options.
Record Trading Volumes for VIX Index Options
Cboe’s VIX Index options have experienced remarkable trading activity in recent years. In 2024, the average daily trading volume reached over 851,000 contracts, reflecting a 60% increase compared to 2022. This surge underscores the growing demand for tools that help investors hedge against market volatility.
Strategic Timing for Investors
Catherine Clay, Cboe’s global head of derivatives, emphasized the importance of the new product: “Investors have long utilized VIX options and VIX futures to help hedge and manage volatility exposure, and Cboe is proud to expand our volatility product suite at such a critical time.” The launch is particularly timely, as it coincides with the upcoming election season, a period historically characterized by heightened market volatility.
Product Features and Regulatory Oversight
The options on VIX futures will feature a European-style exercise mechanism, PM settlement, and will physically settle into the front-month VIX future. These contracts will be regulated by the Commodity Futures Trading Commission (CFTC) and cleared by The Options Clearing Corporation (OCC), ensuring a robust regulatory framework for participants.
Conclusion
The introduction of options on VIX futures by Cboe Global Markets represents a significant advancement in volatility management tools for investors. With the increasing demand for effective hedging strategies, this new product aims to provide a valuable resource for navigating the complexities of the U.S. equity markets, particularly during turbulent times. Investors will soon have a powerful new option to enhance their trading strategies and manage risk effectively.
