Additions to the Volatility Trading Spectrum

By Lawrence G. McMillan

The CBOE is introducing two new variations on volatility products.  The first is that there will be weekly $SPX options expiring on Wednesdays (“Wednesday weeklys” is what the CBOE is calling them).  Recall that $SPX options are the foundation for the $VIX calculation.  $VIX futures and options expire on Wednesdays, and now that there are weekly $VIX futures and options, these Wednesday $VIX expirations extend out several weeks.

By having $SPX options expiring on Wednesdays as well, then traders who set up hedges between the two, will have options that expire on the same day.  However, they won't expire at the same time.  $VIX options expire at the opening of trading on that day, while $SPX weekly options will expire at the close of trading.  I was a bit surprised that they didn’t make the $SPX Wednesday options an “a.m.” settlement as well.

These options will use the base symbol SPXW, which is currently the symbol for the $SPX weeklys that expire on Friday.  Obviously, the date of the expiration will distinguish between Wednesdays and Fridays. 

Wednesday weeklys will not be used in the calculation of $VIX.

The CBOE anticipates listing the first two Wednesday weeklys – expiring March 2nd and 9th – on Tuesday, February 23rd.  In general, new Wednesday weeklys will be listed on Tuesdays.  For example, a weekly later, on March 1st, the March 16th Wednesday weeklys will be listed.  

A second volatility-related improvement by the CBOE is that $VIX will now be calculated and disseminated during overnight trading.  $SPX options trade from 2 a.m. to 8:15 a.m., Central time, each night.  So do $VIX futures and $VIX options.

Since the $VIX calculation is based on the bids and offers for $SPX options, it is possible to calculate $VIX during those same trading hours.  This will allow traders to more accurately price the $VIX futures and to have a feeling for what the important $VIX Index is doing during those extended hours.

It was not announced when this new overnight dissemination of $VIX will begin; as far as I can tell, it has not begun yet.■