US’ biggest options exchange is considering to launch almost 24 hour trading in its Volatility Index Futures – a move that could bring popularize the use of the asset by retail and institutional investors alike to hedge against uncertainty.
The Chicago Board Options Exchnage (CBOE) has issued a press release announcing that they are considering to support almost 24-hour trading in their Volatility Index (VIX) futures. As a recognized tool by traders worldwide, especially those who are looking for ways to hedge their exposure to the markets, the VIX has become quite popular in the past several years, especially in the aftermath of the financial crisis.
VIX’s Volatility Can Attract New Traders
Traders and the media are widely using it as a barometer of general market sentiment deriving from implied volatility of S&P 500 options. The only downside up until now has been that it was traded only during regular US equity market hours. Considering the raft of events that is unfolding outside of this time zone with the emergence of Asia it has become too tough to day-trade it.
The VIX is sports quite erratic movements and it reacts firmly to market moving news, with daily swings in the vicinity of 5 to 10% being quite common. If offered by a retail CFD brokerage it could attract volumes just because of this particular quality that it possesses. While some brokerages have decided to introduce it for trading, it cannot be said that it has gathered big popularity amongst traders.
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The main reason behind traders not catering to it much is that it essentially has to be day traded – with the big risk arising from the VIX opening 5-10% higher or lower and widely fluctuating outside of trading hours risks are difficult to manage within a margin position.
Wider Usage Outside the US
According to the CEO of CBOE Holdings, Edward Tilly, “VIX has become a recognized proxy for global market volatility. Now VIX futures customers around the world – including investment banks, proprietary trading firms, hedge funds, CTAs and issuers of exchange traded products – will have the ability to trade VIX futures virtually around the clock and to react immediately to events affecting global markets.
The company is aiming to increase trading activity from abroad and popularize its instrument for hedging purposes. According to the press release on the matter only 8% of trading volumes in the contract have been sources from outside the US.
The announcement by CBOE is still pending a regulatory approval, however it is unlikely that there will be big hurdles for the launch. The company is aiming at providing almost 24 hour availability with a 15 minute break between 3:15 and 3:30 US Central Time starting from June 22nd.