Introduction

S&P 500 Variance Futures (VA Futures) are quoted, traded and cleared in variance units. Trades are cleared immediately at the time of a transaction. Variance unit trading is different than common over-the-counter (OTC) variance swap conventions, which involve trades in volatility and vega units for price and size respectively.

A variance futures product that trades in volatility and vega units introduces complexities that make it challenging for some market participants to easily trade. Challenges include trading in one set of units but clearing in another (i.e., trading in volatility and vega but clearing in variance units), special order entry protocol features, and the necessary end of day translation and restatement of traded price and quantity that depends on receipt of the end of day closing value of the underlying S&P 500 Index value.

Cboe provides an S&P 500 Variance Futures Variance Calculator tool (Variance Calculator) accessible from the Cboe.com S&P 500 Variance Futures product page that provides market participants with analytics that can be used to translate variance unit trade prices into volatility and vice versa, and to translate variance unit trade sizes into vega exposure and vice versa. In addition, the Variance Calculator provides direct access to data associated with active and expired futures contracts including:

• Listing and expiration dates
• Number of final returns used to calculate the final settlement value
• Number of elapsed returns as of the current trading date
• The day variance and accrued variance values from the listing date to the current date
• The final settlement value calculation details for expired contracts

This document presents the details of the translation analytics and functionality provided by the Variance Calculator.