New Product: Emerging Markets VIX Futures (VXEM)

By Lawrence G. McMillan

The CBOE Futures Exchange (CFE) has launched a new volatility futures contract – this time on the Emerging Markets ETF (EEM).  The volatility index (i.e., the EEM VIX) is calculated from EEM options and is listed under the symbol $VXEEM.  The futures on that index trade with a base symbol of VXEM.  Currently there are March, April and May futures trading.  If you’ll recall, after the initial $VIX futures were listed on the CFE, the only other futures to be listed were those on the Gold ETF (GLD).  Those have practically no trading volume, as interest was very minimal.  However, these new Emerging Market volatility futures have already begun to trade with a modicum of volume.  The front-month March contract has open interest of 129 contracts, with 84 in April, and 47 in May.  Of course, that’s minuscule compared to $VIX futures, but you have to start somewhere.

As with VX futures, these VXEM futures are worth $1000 per point of movement.  They also expire on the Wednesday a.m. expiration, as do VX futures – so the futures are based on the next series of EEM options, expiring 30 calendar days after the VXEM futures expire (just as VX futures and options do).  At this point there are no options on these VXEM futures, but it is likely that there will be in the course of time.

Current prices:

$VXEEM: 30.01
March future: 33.9
April future: 34.7
May future: 34.8

International traders have followed the European vol index (VSTOXX) and its futures to glean information about European stock movements, similar to what we find in $VIX derivatives.  These new $VXEEM derivatives may prove to be useful in that regard as well, especially since U.S. markets appear to be in the control of foreign markets at times.

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