John Hiatt of the CBOE and Vishnu Kurwella teamed up for the last talk of the day to discuss Realized Variance Strategies and Implementation.
John began the presentation by talking about the CFE S&P 500 Variance Futures contracts. The new S&P 500 Variance Futures that were recently rolled out are settled depending on a measure of variance of the S&P 500 Index over the life of a contract. They are quoted and trade in the same convention as variance swaps offered in the Over The Counter market. To match up with OTC variance swaps the final settlement value is adjusted to reflect daily accrual of interest payments on variation margin. He went on to demonstrate how the futures contracts work and noted changes that were implemented based on feedback from end users. More information on Variance Futures can be found at –
John also showed a section of the CBOE website where VIX Term Structure charts can be found.
Kurwella took over as an end user of both Variance Swaps and Variance Futures. Variance swaps give you constant dollar gamma and limit exposure to realized volatility. He runs through several benefits of Variance Futures which can be summed up as they allow end users the ability to negative other factors and just gain exposure to volatility. He then laid out different comparisons of VIX and Variance Futures and discussed what trades may work in different environments.