MIAX looks to Spike volatility futures

Darren Sinden

The Spikes futures are contracts over the levels of 30-day volatility in the SPDR S&P 500 ETF (ticker SPY) or “spider” as it’s colloquially known, which is among the most actively traded ETFs in the world.

This week should see the launch of another competitor in the volatility futures space.

A collaboration between the Miami International Securities Exchange, LLC or MIAX and the Minneapolis Grain Exchange or MGEX, intends to launch so-called Spikes futures contracts which will be tradeable on the CME’s Globex platform.

The Spikes futures are contracts over the levels of 30-day volatility in the SPDR S&P 500 ETF (ticker SPY) or “spider” as it’s colloquially known, which is among the most actively traded ETFs in the world.

The Spikes contracts, which will trade under the ticker SPK, are designed to track the rise and fall in expected 30-day volatility in the ETF and they will be priced using variance methodology and options on SPY across a range of US exchanges.

MIAX believes that its high-speed platforms will allow for more efficient pricing of volatility futures and it will offer pricing updates every 100 milliseconds.

The new futures contracts will trade alongside options on the Spikes volatility index, which was created and calculated by T3 index.com, a firm which specialises in the creation of financial indices and in particular option and volatility-related indices.

The Spikes futures will be available to trade 23 hours a day 5 days per week.

Thomas P. Gallagher, Chairman and CEO of MIAX said “We are grateful to the Commissioners and staff at the SEC and the CFTC for their recognition of the need for innovation and the introduction of competition in the volatility derivatives space,”

The Spike contracts are being launched at an interesting juncture RTFs were originally designed to offer retail customers and institutions, that were embargoed from futures and options trading, an easy way to access investable index products, which had low trading costs and management fees.

From those humble beginnings the ETF market has literally exploded and there are now more than $6.0 trillion dollars invested in exchange-traded products around the world.

Increasingly institutions, banks and hedge funds are using ETFs, not only as asset allocation tools and a way to quickly make thematic trades, but they are also being used to hedge risk positions held elsewhere, in a manner that was once the sole preserve of futures or specialist OTC derivatives.

The SPY ETF itself has $318 billion of assets under management at the time of writing, with an average daily volume of $21.46 billion notional.

We have seen several other volatility indices launch this year including a Nasdaq 100 volatility index from the CME.

Launching index products is one thing, however, but gaining critical mass and popularity is another, the Spike index and its futures and options contracts are an interesting addition to the space whether they are sufficiently differentiated to capture the attention of a significant trading audience remains to be seen.

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