Derivatives and securities exchange network Cboe Global Markets is to launch trading of its previously announced new Cboe S&P 500 Variance Futures on Monday, 23 September, on the Cboe Futures Exchange (CFE).
The new futures will aim to provide market participants with an additional tool to calculate implied volatility of the US equity market as measured by the S&P 500 Index, and to manage volatility risks and express directional views. The futures are designed to offer a streamlined approach to trading the spread between implied and realised volatility, enabling market participants to take advantage of discrepancies between market expectations and actual outcomes.
According to a press statement, Cboe S&P 500 Variance Futures are expected to appeal to a wide range of market participants with diverse investment objectives, including volatility traders and hedge funds seeking capital efficiency and transparency, institutional investors managing equity volatility risk and expressing directional views, portfolio managers aiming for enhanced diversification and risk premia capture, and dealers and market makers transitioning from OTC variance swaps to standardised products.
The new futures contracts will settle based on a calculation of the annualised realised variance of the S&P 500 Index. The realised variance will be calculated once each day from a series of values of the S&P 500 Index beginning with the closing index value on the first day a VA futures contract is listed for trading and ending with the special opening quotation (SOQ) of the S&P 500 Index on the final settlement date of that contract.
The contracts will quote and trade directly in variance units, offering a simplified approach to managing and trading variance exposure. With a contract size of $1[2] and settlement aligned with standard SPX options (generally settling the third Friday of the month), these futures are designed to integrate seamlessly into market participants’ existing trading strategies.
