Cboe’s VIX futures product was launched 20 years ago

Rick Steves

Yesterday, March 26, 2024, marked the 20th anniversary of Cboe Futures Exchange (CFE) and the trading of Cboe Volatility Index (VIX) futures.

Launched in 2004, CFE was established to offer a transparent and liquid marketplace for volatility futures, with VIX futures being its inaugural product.

This launch marked a significant milestone in making volatility a tradable asset class and opened the door for a range of volatility-based derivatives, including options and exchange-traded products (ETPs).

From 449 VIX futures contracts to 53.7 million

The first trading day saw 449 VIX futures contracts exchanged on this all-electronic platform. Since its inception, the VIX Index has been a key measure of market sentiment in the U.S. stock market. In 2023, VIX futures trading volumes hit 53.7 million contracts, underlining its status as a leading exchange-listed volatility future globally.

VIX futures allow traders to speculate on the future state of market volatility, offering diverse strategies for risk management, alpha generation, and portfolio diversification. The VIX Index itself measures the expected 30-day volatility of the U.S. stock market based on S&P 500 Index options. Cboe’s global trading sessions further enhance the accessibility of VIX futures to investors worldwide.

Over the past two decades, CFE has broadened its product offerings, including weekly VIX futures, smaller contract sizes for greater accessibility, and risk management solutions for the fixed income market. Alongside these, CFE, with support from Cboe Labs, is exploring new products like S&P 500 Variance Futures and futures based on the Cboe S&P 500 Dispersion Index (DSPX), both pending regulatory approval.

Laura Fuson, Vice President and Head of Futures at Cboe Global Markets, said: “Cboe has been a pioneer in the volatility space and helped establish volatility as a tradeable asset class with the launch of VIX futures in 2004, and 20 years later, we remain steadfast in our approach to developing sophisticated strategies into exchange-listed futures. Cboe Futures Exchange offers participants access to liquid and transparent risk management solutions and the ability to trade volatility around major market events, such as economic data or elections. By continuing to work with our partners and clients, we aim to build upon Cboe’s rich history of innovation and help provide investors the tools they seek to better manage their portfolios.”

Cboe keeps launching new volatility indices

Cboe recently announced the launch of two new volatility indices: the Cboe MSCI EAFE Volatility Index (VXMXEA) and the Cboe MSCI Emerging Markets Volatility Index (VXMXEF). These indices are developed using Cboe’s proprietary VIX Index Methodology and are based on the existing MSCI Index options, offering measures of expected volatility in international and emerging equity markets.

The new index options will have standard expirations on the third Friday of each month, with additional five end-of-week expirations planned to start on March 21, 2024.

In October 2023, Cboe introduced four new Credit Volatility Indices (Credit VIX) intended to act as key barometers of corporate credit risk, essentially expanding the VIX methodology into the fixed-income space.

The indices aim to mirror the market’s perception of expected near-term volatility in corporate credit risk, much like the traditional VIX measures anticipated equity market volatility. The development comes as financial markets navigate turbulent conditions, including recent bank collapses and persistent economic uncertainties. The new indices are:

CDX/Cboe NA High Yield 1-Month Volatility Index (VIXHY)
CDX/Cboe NA Investment Grade 1-Month Volatility Index (VIXIG)
iTraxx/Cboe Europe Main 1-Month Volatility Index (VIXIE)
iTraxx/Cboe Europe Crossover 1-Month Volatility Index (VIXXO)

The Credit VIX indices come at a crucial time for investors, particularly given the rise in volatility observed amid the COVID-19 pandemic and the 2023 collapse of two U.S. banks. For instance, the VIXHY Index jumped from 240.09 on March 2 to 394.15 on March 20 this year, and during the COVID-19 crisis, it surged to 1,263.97.

This new product suite is a compelling addition to Cboe’s existing roster of volatility indices and is aligned with the exchange’s strategy of providing more comprehensive analytical tools to market participants. It builds upon Cboe’s recent launches of the Cboe 1-Day Volatility Index (VIX1D) and the Cboe S&P 500 Dispersion Index (DSPX), also developed in association with S&P DJI.

In April 2023. Cboe launched the Cboe 1-Day Volatility Index (VIX1D) which aims to measure the expected volatility of the S&P 500 Index over the current trading day. Similar to the Cboe Volatility Index (VIX Index), the VIX1D Index estimates expected volatility by aggregating the weighted prices of P.M.-settled SPX (SPXW) options with one- to zero- day expirations over a wide range of strike prices. Specifically, the prices used to calculate VIX1D Index values are midpoints of real-time, SPXW option bid/ask price quotations.

By launching a product that measures single trading day volatility, the leading derivatives and securities exchange network, further enhances market participants’ understanding of current equity market volatility. The VIX1D Index was developed by Cboe Labs, the company’s in-house innovation hub.

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