New $VIX Products: Weekly $VIX Futures and Options - Realized Volatility Options

By Lawrence G. McMillan

The Striking Price column in Barron’s (May 4, 2015) discussed the fact that there are going to be weekly listed $VIX futures and $VIX options.  

From what I can gather from the CFE (CBOE Futures Exchange), there will be newly-listed weekly $VIX futures.  Since these futures will still use the same formula for determining the underlying, they will be based on $SPX weekly options that expire 30 days hence.  That is akin to the currently $VIX monthly options that are based on the $SPX monthly options that expire 30 days hence.  

The Barron’s article intimated that this would allow one to trade $VIX on a short-term basis.  However, if the new $VIX weekly futures are based on options expiring 30 days hence, they will have the same vagaries as current $VIX futures and options do.  The one big difference, though, is that the futures will converge to $VIX on a weekly basis.  It seems likely that the expiration will still occur on a Wednesday morning “a.m.” settlement, likely via the same process that is now used for $VIX monthly options.  

These are different from the $VXST (CBOE’s Short-Term Volatility Index) futures and options.  That index attempts to compute a 9-day volatility, whereas $VIX computes a 30-day volatility.  So it would still seem to me that trades in the $VXST futures and options would allow one to more closely track short-term volatility movements.  Unfortunately, those $VXST futures and options are quite illiquid, and thus it’s been very difficult to trade them.  On many occasions we have placed bids or offers between the $VXST options’ bids and offers and come away empty-handed.  That is not the case with $VIX options, where it is relatively easy to trade between the bid and offer, due to the large size available on either side $VIX option markets.

Realized Volatility Options 

We have previously written about the proposed realized volatility options to be listed by VolX.  They will eventually be traded on the BOX Exchange, when finally approved.  At last week’s OIC conference, it was announced that SEC approval has been obtained, so there are just a few – relatively minor – regulatory roadblocks to hurdle before these can finally be listed.  When they are ready to go, we will discuss them in depth.  It remains to be seen whether they will be a significant improvement on the Variance Futures that traded on the CFE for several years, before finally being delisted.