What are Options on VIX® Futures?
Options on Cboe Volatility Index® (VIX® Index) Futures offer more choices to express directional views and manage equity market volatility exposure. These new, innovative contracts provide optionality into front month VIX futures, are physically settled, and trade on Cboe Futures Exchange, LLC.
Key Benefits
- New, Unique Risk Exposure
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Access a new and different payout profile than what is currently available in the volatility space.
- Targeted Volatility Trading
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Manage exposure with greater granularity and execute event-specific trading strategies.
- Efficient Delta Management
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In-the-money options are settled into the front month VIX futures contract which enables more precise delta management.
- Expanded Market Access
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Listed on a futures exchange which opens doors for market participants unable to trade in securities products.
Options On Cboe Volatility Index® Futures Use Cases
Client:
CTA (Commodity Trading Advisor) Fund
Challenge:
Accessing optionality for pure volatility positions related to the Cboe Volatility Index® (VIX® Index).
Background:
CTAs run managed futures strategies, both systematic and discretionary, but are constrained to using futures-based instruments. This use case looks at a CTA fund that is looking to access optionality in the equity volatility space.
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Client:
Market Maker
Challenge:
In recent years, SPX options market makers have acted as liquidity providers for daily expiring SPX options. The trading activity in these SPX options reflects the appetite from market participants for more granular expiries within the options landscape, which, in turn, increases the demand from market makers for more granular expires in the VIX® suite of products.
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Client:
Volatility Hedge Fund/Systematic Portfolio Manager
Challenge:
Periodically, event driven catalysts provide dislocations in the volatility term structure. Such dislocations can occur with respect to the front end of the term structure, such as if investors overreact to current events, which, in turn, may provide an opportunity to monetize a normalization in forward volatility. In situations in which the fund desires optionality, whether it be because the fund either wishes to lever its position or has a relatively low to moderate level of conviction, the fund currently may be limited to utilizing calendar spreads constructed using Cboe Volatility Index® (VIX®) options.
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