New Variance Futures (VGQ)

By Lawrence G. McMillan

Variance futures are attractive to institutions, but apparently for individuals: not so much.  The CBOE Futures Exchange (CFE) delisted its variance futures contracts (on $SPX) a few months ago.  They are supposedly working on a new contract in a somewhat different format.

Meanwhile, the CME has announced its intention to introduce variance futures on a wide array of 9 different futures markets.  The following table summarizes these new listings:

Trading was originally slated to start on Monday, April 22nd, but the exchange web site says “This product is not available for trading until after the product rules have been submitted to the CFTC.”  I hope the rules have been submitted, but they are probably not yet approved.

“Spot” variance will be calculated on the daily percentage price changes by the standard mathematical formula, times 10,000.  So something with a variance of 10% would be trading at 1,000.  The actual futures contracts will be worth $1 per point of price movement.  Some of these variances can be wild, since variance is volatility squared.  Some may recall that the now defunct CFE Variance futures rose from about 100 to 8,000 during the Financial Crisis of 2008.  We intend to pay attention to these, when they begin trading.