Something New in Volatility Trading

Volatility traders should keep an eye out for a big development this week. This coming Thursday (October 4th) S&P 500 Variance Futures are scheduled to be launched by the CBOE Futures Exchange (CFE). These futures contracts vary from VIX as they allow traders the ability to trade the difference between the implied and realized variance of the S&P 500 Index. 

Currently over-the-counter (OTC) variance swaps are the most commonly used vehicle for trading the difference between implied and realized volatility. S&P 500 Variance Futures will trade and be quoted like OTC variance swaps, but will have some of the common advantages of exchange traded derivatives. Those advantages include transparent markets, efficient price discovery, and counterparty clearing guarantees.

More information on S&P 500 Variance Futures can be found at –

http://cfe.cboe.com/Products/Products_VA.aspx

Keep an eye out for their debut Thursday and check back here as I plan on reporting on the first day Thursday evening through our blog site.