The Chicago Board Options Exchange (CBOE) and CBOE Futures Exchange (CFE) are to launch trading on Russell 2000 Volatility Index options (RVX) and futures (VU).
Trading on Russell 2000 Volatility Index futures will begin on 30 October, with options trading to begin in the weeks that follow, pending regulatory review.
The Russell 2000 Index measures the performance of small-capitalisation US stocks and is an effective gauge and play on the health of the US economy. Eighty four per cent of the revenues generated by the companies in the index come from within the US.
Because US small-cap and large-cap indices are affected by different economic factors, the implied volatility of one does not always closely correlate to the other. VU futures and RVX options will allow investors to hedge volatility of a portfolio of small-cap stocks and to spread the volatility level of the Russell 2000 against large-cap index volatility to take advantage of differences between small- and large-cap company dynamics.
"We are excited to expand our partnership with Russell Indexes by adding volatility futures and options on the definitive vehicle for US small-cap market exposure - the Russell 2000 Index," says CBOE Holdings chief executive officer Edward T Tilly. "Used on their own or in combination with our flagship CBOE Volatility Index products, Russell Volatility Index products will allow customers to hedge, diversify or take a directional view on volatility in the small-cap market sector."
"Extending the ways investors can access and use Russell Indexes is an important part of our strategy as a leading global index provider," says Ron Bundy, chief executive of Russell Indexes. "CBOE is a pioneer in index options trading, offers broad reach and liquidity for index investors and traders and is a leader in options education. These factors are all important to us as we continue to build out our customer offering and enhance the products and services we provide to our clients."
The calculation of the CBOE Russell 2000 Volatility Index (RVX Index) is based on the CBOE Volatility Index (VIX Index) methodology applied to CBOE listed options on the Russell 2000 Index (RUT), the third most actively traded index option at CBOE in the first half of 2013. The RVX Index is an up-to-the-minute market estimate of the expected 30-day volatility of the RUT Index, calculated using real-time bid/ask quotes of RUT options that are listed on CBOE.
Jane Street Capital will serve as the designated primary market maker (DPM) for VU futures traded on CFE, and Group One Trading will serve as the DPM for the RVX options traded on CBOE.