Cboe Expands Volatility Trading Options with Launch of VIX Futures Options

Cboe Global Markets, Inc. (CBOE: CBOE) has introduced a new financial instrument, Options on Cboe Volatility Index Futures (VX Options), in response to the growing demand for sophisticated volatility trading tools. This launch represents a significant development in the options trading landscape, providing investors with enhanced capabilities to express directional views and manage equity market volatility exposure.

The introduction of VX Options comes at a time of unprecedented growth in options trading. According to the Options Clearing Corporation, total U.S. options volumes exceeded 11 billion contracts in 2023, marking the fourth consecutive year of record volumes and a 126% increase since 2019. The average daily volume through the third quarter of 2024 reached 47 million contracts, an 8% increase compared to the same period last year.

VX Options are European-style, physically settled options with PM settlement, based on the front-month VX futures contract. This structure offers several key benefits to traders. It provides a 'mid-curve style' exposure, facilitating a new payout profile not previously available in exchange-traded derivatives. Additionally, the product allows investors to take short-term views on forward volatility movements, potentially increasing market liquidity.

One of the primary advantages of VX Options is their ability to offer more precise delta management through settlement into the front-month VIX futures contract for in-the-money options. Furthermore, trading data from VX Options is expected to yield new insights into the volatility-of-volatility term structure, enhancing risk management efficiency across the market.

Catherine Clay, Global Head of Derivatives at Cboe, emphasized the product's importance, stating, '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.' She also noted that the launch would complement Cboe's existing volatility offerings, including the recently introduced Cboe S&P 500 Variance futures.

The launch of VX Options is particularly timely given the current market environment and upcoming events that could impact volatility, such as the election season. It provides traders with an additional tool to manage risk and capitalize on market opportunities during potentially turbulent periods.

In conjunction with this product innovation, Cboe continues to support traders through its Options Institute, which has been a leader in options education for over 35 years. The institute offers a comprehensive range of resources, including free online courses, webinars, and insights from market experts, designed to help both novice and experienced traders navigate the complexities of options trading.

The introduction of VX Options reflects Cboe's ongoing commitment to innovation in the derivatives market. As investors become increasingly sophisticated in their use of derivative instruments, products like VX Options are likely to see growing demand. This launch not only expands Cboe's product suite but also enhances the overall ecosystem of volatility trading instruments available to market participants.

For the broader financial industry, the introduction of VX Options signifies a continued evolution in volatility trading products. It provides market participants with more granular tools to express views on market volatility, potentially leading to more efficient pricing and risk management across various asset classes. As the market for these sophisticated products grows, it may also drive further innovations in trading technology and risk management systems.