On July 16 in New York City, a panel of four volatility experts - Mark Chen, Managing Director, Citigroup; Joe Aiken, Managing Partner, Malachite Capital Management; Krag “Buzz” Gregory, Managing Director, Goldman Sachs; and Jim Lubin, Managing Director; CBOE Futures Exchange, LLC (CFE®), had a lively and upbeat discussion on the topic of Managing Portfolios with VIX®Weeklys Futures and Options.
CFE plans to list futures with weekly expirations on the CBOE Volatility Index®(VIX) beginning at 3:30 P.M. CT on Wednesday July 22 (this is the beginning of the July 23 trading day), subject to regulatory review. VIX Weeklys options at CBOE are expected to follow on a later date, also subject to regulatory approval. www.cboe.com/VIXWeeklys.
At the panel discussion, strong interest was expressed in being able to trade volatility products with more expirations around-the-clock, and much of the discussion focused on recent Sunday night VIX trading in reaction to weekend events in Greece.
Key points about the new VIX Weeklys futures and options include -
- The new VIX Weeklys futures and options will offer more expirations that have the potential to provide more precision and responsiveness for investors. There will be more expirations for VIX futures and options, with the expected convergence of VIX futures to the cash settlement price available four to five times a month instead of once a month.
- The addition of weekly expirations to standard monthly futures and options expirations offers volatility exposures that more precisely track the performance of the VIX Index.
- By ‘filling the gaps’ between monthly expirations, investors may obtain new opportunities to establish short-term VIX positions, and fine-tune the timing of their hedging and trading activities.
- The closer VIX futures and options are to expiration, the more closely they generally track the VIX Index.
- VIX Weeklys provide a natural extension of the VIX offering with a standard VIX term structure. VIX Weeklys offer investors additional short-dated volatility plays while leveraging an already liquid product.
- The beta, or measure of how closely the contract tracks the underlying, increases as it approaches expiration. That also means the Weeklys could be more reactive to the release of economic reports and other market-moving events. By adding more expirations, CBOE is giving investors additional opportunities to trade VIX futures with a high beta to the VIX Index.
- The new VIX Weeklys will be quoted in the same VIX chain on quote screens offered by Bloomberg and other quote vendors.
SAMPLING OF CHARTS DISCUSSED DURING THE PANEL
Below is a sampling of some of the many charts discussed during the panel.
FIGURE 1 – VIX FUTURES – DAILY VOLUME IN EXTENDED TRADING HOURS
After news broke on the weekend of June 27 that the banks in Greece would be closed, trading volume for VIX futures in the Extended Trading Hours session (5:00 p.m. (Sunday) to 8:30 a.m. (Monday)) spiked to 60,144 contracts. The panel noted that many volatility traders followed the VIX futures the night of Sunday, June 28.
FIGURE 2 –VIX INDEX AND VIX FUTURES ON JUNE 29
As shown in the table below, on the morning of June 29 the VIX Index rose 2.45 points and the July VIX futures were up 0.95.
FIGURE 3 – EXPIRATION DATES AND TICKER SYMBOLS
It is expected that this week there VIX Weeklys futures with expirations on Aug. 5 and Aug. 12 will be listed, and then later the VIX Weeklys futures with Aug. 26 expiration will be listed.
FIGURE 4 – BETA OF VIX FUTURES TO THE VIX INDEX
In an analysis of more than 2,700 dates, VIX futures had a beta of 0.79 with one day to the VIX standard expiration, while the VIX futures had a beta of 0.39 with 33 days to standard expiration.
FIGURE 5 – AVG. DAILY VOLUME FOR S&P 500 WEEKLYS OPTIONS
Several attendees and panelists noted that the strong growth in volume for S&P 500 Weeklys options could be a very good sign for the potential for growth of the VIX Weeklys futures and options.
For more information regarding the new VIX Weeklys, please visit www.cboe.com/VIXWeeklys.