VIX Clicks ! Upticks in VIX Futures Volume

With the pages closed on Q3, volumes at CFE (CBOE Futures Exchange) continue to demonstrate the utility and popularity in trading VIX futures.

First, the numbers:

VIX futures in September traded over 2.4 million contracts, for an increase of nearly 26 % over August and an 11% over June which was the previous record month. Total trading for all CFE products in September totaled 2,410,549 and 2012 has produced the top 5 trading months in exchange history. Also established were a record trading quarter and for the month new records were also set in open interest, total exchange volume, VIX futures volume and ADV. Since June, the average for the VIX index has been 17.30, quite below the historical mean.

So, why all the volume in a low volatility regime? Part of the allure can be traced to the strong inverse correlation with the broader market but without a doubt, volatility trading has indeed become an asset class and CBOE has the industry benchmark for pricing volatility….globally. And with CFE and VIX futures, market participants have the ability to actively participate in this global asset class. The exchange has seen new inflows of order routing from a broad selection of active market participants, as options market makers, prop groups, CTA’s, Hedge Funds, et all have discovered that a mature and robust VIX futures market allows them to incorporate an element of volatility into their strategies. Whether that means as a hedge, directional view on volatility or as a day trade, VIX futures provides the necessary diversification that augments a portfolio encompassing a variety of strategies. And let us not forget the index providers and banks that have built products that are tied to VIX futures as considerable volume, through those issued vehicles, is being driven to the CFE.

Recognizing the value of a volatility component within a style selection, CBOE / CFE has introduced other volatility futures products that encompass an array of asset classes. The exchange now lists an Emerging Market VIX (VXEM), Brazil VIX (VXEW) Oil VIX (OV) and Gold VIX (GV) and all measure the markets expectation of 30 day implied volatility. These are based off of ETF options, namely EEM, EWZ, USO and GLD, respectively. These 4 new products are designed as security futures, meaning that they may be held in either a futures or securities account. What these products afford is the opportunity to explore relative value plays, especially with the emerging Market and Brazil products or as a means to capture volatility moves in the case of Oil and Gold VIX. Market participants will need to do their homework as the inverse correlation aspect that is found in the equity VIX may not be as pronounced in these other products. Rounding out the suite of VIX products at CFE is the VN or Nasdaq VIX, also designed to reflect investors’ consensus view of future (30-day) expected market volatility, in this case, of the Nasdaq-100 Index.

All told, investors today have a better handle on trading volatility….not only ‘how’ but ‘why’. And with the roster of VIX futures products listed here at CFE, these same investors and market participants have the ability to help manage that unforeseen turbulence, better known as market volatility.

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Jay Caauwe