CBOE Launches S&P 500 Variance Futures for Managing Market Volatility

The new product is an additional vehicle to trade implied volatility of the U.S. equity market  

• A new exchange-traded solution is designed to hedge against and capitalize on U.S. equity market volatility moves. 

• The product debuts at a critical time as market participants navigate an uncertain macro environment.

• As demand for hedging and income generation rises, Cboe’s goal is to broaden access to the derivatives markets. 

Cboe Global Markets (CBOE) has announced its new Cboe S&P 500 Variance Futures (VA) will begin trading next Monday on the Cboe Futures Exchange (CFE). 

The new Cboe S&P 500 Variance Futures are designed to offer market participants a robust tool for calculating the implied volatility of the U.S. equity market, as measured by the S&P 500 Index. These futures also provide a means to manage volatility risk and articulate directional market views. 

Expected to attract a broad spectrum of investors, the Cboe S&P 500 Variance Futures cater to various investment goals.

Volatility traders and hedge funds will appreciate the capital efficiency and transparency these futures offer, while institutional investors can leverage them to manage equity volatility risk and express market views.

Portfolio managers seeking enhanced diversification and risk premia capture, along with dealers and market makers transitioning from over-the-counter (OTC) variance swaps to more standardized products, will also find these futures advantageous. 

"We're excited anytime a new potential product for our customers comes to market that may allow them to become more strategic with their trading," said JJ Kinahan, CEO of IG North America.

The product will debut at a pivotal time as investors continue to navigate an uncertain macro environment amid the upcoming U.S. elections, shifting monetary policy and ongoing geopolitical tension.  

"The launch of Cboe S&P 500 Variance Futures comes at a crucial time when risk management is top of mind for many market participants," said Rob Hocking, Cboe head of product innovation. “For those looking to hedge against or capitalize on volatility moves, we believe this new product will offer an accessible and capital-efficient way to replicate the exposures of OTC variance swaps.” 

Noel Smith, managing partner and chief investment officer at Convex Asset Management, said the introduction of Cboe S&P 500 Variance Futures will be a useful and welcome addition to the volatility toolkit. Variance futures fill a useful gap in dispersion trading, tail hedging and relative value volatility arbitrage, he noted.

The Cboe S&P 500 Variance Futures contracts will settle based on a calculation of the annualized realized variance of the S&P 500 Index. The realized variance will be calculated once each day from a series of values of the S&P 500 Index beginning with the closing index value on the first day a VA futures contract is listed for trading and ending with the special opening quotation (SOQ) of the S&P 500 Index on the final settlement date of that contract. 

The contracts will quote and trade directly in variance units, offering a simplified approach to managing and trading variance exposure. With a contract size of $1 and settlement aligned with standard SPX options (generally settling the third Friday of the month), these futures are designed to integrate seamlessly into market participants’ existing trading strategies. 

"It's great that CBOE is providing an opportunity for those who want to dive into the deep end of trading equity volatility," said Jermal Chandler, host of Engineering the Trade, a show helping tastylive traders get a sense of the way the market is moving from an analytical point of view. "It speaks to the growth of options and futures in finance."

Additionally, Cboe expects to introduce trading in options on VIX futures, starting Oct. 14, subject to regulatory review.  

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