Making Sense of Variance Futures: A Quick Guide for Traders

Ever looked at the variance futures price on your screen and wondered what it really means?

Natalie Reed, Senior Director, Head of Derivatives Sales, explains everything you need to know about variance.

What’s Behind That Quote Variance Futures Price?

The quoted price is a blended volatility strike squared. For example, if you have a 20 realized vol and a 20 implied vol, you’ll see a variance price of about $400.

As the contract matures, it accumulates more realized volatility with each observation date. This means the realized vol squared component becomes a bigger part of the price over time. But don’t forget — there’s still some implied volatility baked in until the contract reaches maturity.

Trading Sizes: From OTC to Listed

Many clients are used to trading anywhere from $100,000 to $500,000 of Vega in the over-the-counter (OTC) variance swap market. Our goal? Make listed variance screens a simple “point-and-click” experience for trades of $10,000, $20,000, even up to $50,000 of Vega.

Want to Check Realized Volatility?

Easy. Just plug the contract’s current listed price and the S&P 500 index level into Cboe’s variance calculator. It’ll show you the realized volatility up to that point.

Cboe’s variance futures calculator helps traders:

• Convert variance futures price to vol and variance units.
• Calculate Vega notional equivalents. Just enter the contract maturity, variance price, and SPX index level, and you’ll see accrued realized variance and implied vol.
• Want to size your trade? Enter your Vega notional, and the calculator does the rest.

Learn more here