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CBOE Futures Exchange to Launch Weekly Expiration VIX

The widely popular measure of volatility is to get a shorter term expiration contract to meet increased hedging demand from

The CBOE Futures Exchange (CFE) has unveiled its roadmap to launch a new contract on the company’s widely popular VIX index (volatility index). The exchange is aiming to launch a weekly expiration futures contract starting from July 23rd. The intention of the exchange is subject to a regulatory approval, which in this case should be closer to a formality.

After the launch of the futures contract, the CFE is expecting to rollout a VIX Weeklys option contract to complement the offering.

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The widely popular benchmark of S&P 500 volatility has been on investors’ radar for a number of years, becoming especially popular in the aftermath of the Great Financial Crisis of 2008. The contract is based on the real-time prices of options on the S&P 500 Index (SPX), reflecting the sentiment of investors on the 30-day stock market volatility.

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Currently the contract expires on a monthly basis, which is somewhat limiting to certain investors. The CFE has decided that a four to five times monthly convergence to the VIX cash index will open new possibilities to investors. Under the current framework of a single monthly expiration, the price of the futures is getting closer to the underlying VIX index as the due date closes in.

The CEO of the CBOE Holdings, Edward T. Tilly, commented on the announcement, ”The addition of VIX weekly expirations to standard monthly expirations offers volatility exposures that more closely track the performance of the VIX Index.”

“VIX Weeklys futures will give investors more opportunities to trade VIX and greater trading precision when responding to breaking news and economic events,” he explained.

This by far isn’t the first product to which the CBOE is adding a weekly expiration schedule. The company started the offering in 2005. Currently, the VIX futures are a favorite hedging tool against stock market volatility mainly because the contract is tradable almost 24 hours a day with a short daily break totaling 15 minutes between 8:15 p.m. GMT and 8:30 p.m. GMT.

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