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Strong start for CBOE short-term volatility index options

Fri, 11/04/2014 - 16:01

First-day trading volume for CBOE Short-Term Volatility Index options with weekly expirations totalled an estimated 3,134 contracts, according to data released by the Chicago Board Options Exchange.

“We were pleased to see a very active opening day of trading in Short-Term VIX options, with strong volume and broad market participation,” says CBOE Holdings CEO Edward T Tilly.  “Short-Term VIX options bring a new dimension for volatility trading to the market, and it is clear from today’s activity that market participants see tremendous utility for the contract.”
 
CBOE developed VXST options in response to proven demand for Weeklys options generally, and volatility contracts that measure a shorter time period in particular. 
 
Like CBOE’s flagship CBOE Volatility Index (VIX Index), the Short-Term VIX Index reflects investors' consensus view of expected stock market volatility using CBOE’s proprietary VIX methodology.  Both indexes use S&P 500 Index (SPX) options in their calculations.  Whereas the VIX Index uses SPX monthly options to measure expectations of 30-day volatility, the VXST Index uses SPX options that expire every week (including SPX Weeklys) to gauge expectations of nine-day volatility. 
 
The 30-day VIX Index and the nine-day VXST Index are highly correlated, but the VXST Index is generally more volatile than the VIX Index.  
 
In addition to taking advantage of the shorter time horizon of Short-Term VIX Index products to respond to near-term market moves, VXST options have weekly expirations and a similar settlement process as VIX options and futures, enabling traders to create strategies using VXST and VIX to capture changes in the volatility term structure.  CBOE Futures Exchange (CFE) launched trading of VXST futures in February.  


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