Cboe Unveils Groundbreaking Options on VIX Futures, Empowering Investors to Manage Volatility with Precision

Cboe Global Markets, the world's leading derivatives and securities exchange network, has announced the launch of its highly anticipated Options on Cboe Volatility Index (VIX) Futures. This innovative product, set to begin trading on Cboe Futures Exchange, LLC (CFE) on October 14, 2024, promises to revolutionize the way investors manage volatility in the U.S. equity markets.

Unlocking New Possibilities in Volatility Management

Enhancing Volatility Exposure and Risk Management

The new Options on VIX Futures will provide investors with an additional tool to help manage U.S. equity market volatility, complementing Cboe's existing securities-based VIX Index options. Utilizing an option-on-future structure, the new product aims to offer more market participants, including those previously restricted from accessing securities-based options, the ability to trade a VIX options product.This expanded access is particularly significant, as Cboe's VIX Index options have seen record trading volumes in recent years, with average daily volumes reaching over 851,000 contracts in 2024 – a remarkable 60% increase from 2022. The growing demand for these volatility management tools underscores the critical role they play in navigating the ever-evolving market landscape.

Complementing Cboe's Volatility Product Suite

The launch of Options on VIX Futures follows the recent introduction of Cboe S&P 500 Variance (VA) futures, which are designed to provide a streamlined approach to trading the spread between implied and realized volatility. Together, these new products add to Cboe's existing volatility suite, offering investors a comprehensive set of exchange-traded solutions to manage market volatility ahead of and following the U.S. election."Investors have long utilized VIX options and VIX futures to help hedge and manage volatility exposure, and Cboe is proud to expand our volatility product suite at such a critical time," said Catherine Clay, Global Head of Derivatives at Cboe. "With its options-on-futures structure, the new Options on VIX Futures will look to meet growing customer demand as Cboe works to provide an efficient and seamless experience to both existing and new CFE market participants."

Addressing Evolving Investor Needs

The new Options on VIX Futures are designed to address the evolving needs of investors, particularly as they prepare for the upcoming election and navigate the recent changes in the Federal Reserve's monetary policy. Rob Hocking, Head of Product Innovation at Cboe, noted, "We've seen a shift in how investors are using options on a day-to-day basis, and with Options on VIX Futures having a mid-curve structure and the ability to offer short-term exposure, investors are expected to be able to manage short-term volatility with greater precision."This sentiment is echoed by industry leaders, who have expressed their enthusiasm for the new product. Christine Hansen, CEO at IMC US, stated, "We are proud to support the expansion of listed volatility offerings from Cboe to meet the varying needs of investors." Tom Chlada, Chief Operating Officer at Prime Trading, added, "Cboe's new Options on VIX Futures will be a very welcomed addition to our toolkit, enabling us to better express views on volatility and fine-tune our risk management approach."

Leveraging Volatility for Portfolio Optimization

The new Options on VIX Futures are expected to play a crucial role in portfolio management strategies, as evidenced by the enthusiasm from industry experts. Keith DeCarlucci, Chief Investment Officer at Melqart KEAL Macro Fund, commented, "VIX futures and options play an important role when managing portfolios, and we welcome Cboe's further expansion of its exchange-traded volatility tools with Options on VIX Futures. Combined with the recent variance futures launch, we have two new products to leverage."The ability to manage short-term volatility with greater precision, as well as the potential to enhance portfolio optimization through the use of VIX futures and options, underscores the significance of Cboe's latest offering in the volatility space.

Seamless Integration and Regulatory Oversight

The new Options on VIX Futures will be regulated by the Commodity Futures Trading Commission (CFTC) and cleared by The Options Clearing Corporation (OCC), ensuring a robust and transparent framework for trading. The contracts will feature European-style exercise, P.M. settlement, and physical settlement into the front-month VIX future, providing market participants with a streamlined and efficient trading experience.Cboe's commitment to innovation and customer-centric solutions is evident in the launch of Options on VIX Futures, which aims to enhance the accessibility and usability of volatility management tools for a wide range of investors. As the exchange continues to prioritize product development and engagement with its customers, this latest addition to the volatility complex is poised to empower market participants in navigating the dynamic and ever-changing financial landscape.