Cboe Global Markets announced that its new Cboe S&P 500 Variance Futures are expected to begin trading on Monday 23 September on the Cboe Futures Exchange.
Rob Hocking
The new futures aim to provide market participants with an additional tool to calculate implied volatility of the US equity market as measured by the S&P 500 Index, and to manage volatility risks and express directional views.
The futures are designed to offer an improved approach to trading the spread between implied and realised volatility, allowing users to take advantage of discrepancies between market expectations and actual outcomes.
“The launch of Cboe S&P 500 Variance Futures comes at a crucial time when risk management is top of mind for many market participants, amid the backdrop of the upcoming US election, shifting monetary policy and ongoing geopolitical tensions,” said Rob Hocking, head of product innovation at Cboe.
“As demand for hedging and income generation rises, our goal is to broaden access to the derivatives markets by simplifying complex, capital-intensive strategies and making them more easily tradable in an exchange-listed, centrally cleared environment.”
Cboe Global Markets expects the new futures to appeal to a wide range of market participants with a wide range of investment objectives, including volatility traders and hedge funds seeking capital efficiency and transparency; institutional investors managing equity volatility risk and expressing directional views; portfolio managers aiming for enhanced diversification and risk premia capture; and dealers and market makers transitioning from OTC variance swaps to standardised products.
“Having traded variance since 2002, being able to trade a simple cleared variance product will be a very welcome addition to our portfolio,” said Keith DeCarlucci, chief investment officer at Melqart Asset Management.
Read more: Cboe to launch options on Cboe Volatility Index futures
The Cboe S&P 500 Variance Futures contracts will settle based on a calculation of the annualized realized variance of the S&P 500 Index.
The realised variance will be calculated once daily from a series of values of the S&P 500 Index beginning with the closing index value on the first day a VA futures contract is listed for trading and ending with the special opening quotation (SOQ) of the S&P 500 Index on the final settlement date of that contract.
Cboe Global Markets added that the contracts will quote and trade directly in variance units, offering a simplified approach to managing and trading variance exposure.