VIX futures sets record, volatility trading on the rise

The Chicago Board Options Exchange’s (CBOE) volatility complex has been a successful franchise stemming from its benchmark CBOE volatility index (VIX). But since launching futures and options on the benchmark VIX, options volume has been more impressive than the futures contract which is offered through CBOE Futures Exchange (CFE). But in November VIX futures has set a series of volume records culminating on Tuesday Nov. 16 with record volume of 70,754, which surpassed a two-week old record by 50%.

Jay Caauwe, CBOE director of business development, does not attribute the recent uptick in volume to one cause but a combination factors and years of effort to promote the product. He points out that exchange trade notes (ETN) based on the VIX launched by Barclays Capital last year has helped increase volume.

There is a hedging need by the ETN provider and people have become more familiar with the product. The VXX ETN, which is linked to the performance of the VIX futures, is experiencing increased volume and has recently implemented a 1 for 4 reverse split.

Caauwe also points out increased speculative interest and the development of spread trading the VIX futures along with the E-mini S&P. “Some groups have been waiting for the market to get more robust,” says Caauwe, “More and more people are figuring out a way to use it.”

Volatility as an asset class has been gaining steam and CFE will soon have more competition. The Volatility Exchange (VolX) recently announced a licensing agreement with CME Group to launch realized volatility contracts on currencies by Feb. 7 according to VolX CEO Robert Krause. The VolX contracts to be listed on CME do not compete with CFE directly as they are based on realized volatility as opposed to implied volatility and initially will be on currencies but represents a growing interest in volatility trading.

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