This Week in VIX Options and ETNs – 12/13/2013

Last week I was honored to be the presenter for a three part webcast series about new products that have been created by CBOE in 2013 for the volatility sector of the market.   On Wednesday last week I spoke about the CBOE Short-Term Volatility Index (VXST) and at the end of the presentation encouraged email questions.  One of the questions I received was, “Why would there be a need for futures and options based on VXST?”  This question came in due to comments I made regarding plans being in place for CBOE and the CBOE Futures exchange planning on offering markets on VXST Options and VXST Futures in 2014.

Options and futures on VXST will be an efficient method for trader and investors to gain exposure to changes in near term implied volatility as indicated by options trading on the S&P 500 (SPX) Index.  VXST is a measure of 9-day implied volatility and this measure of market volatility can react dramatically based on what is going on in the equity market or a short term outlook based on pending macro-economic news.  This week’s market activity in VXST relative to other volatility indexes that focus on longer dated volatility is a good example of VXST reacting to near term market concerns.  The curve comparing volatility index closing prices on Friday December 6 and Friday December 13 show up below.


Note that with the S&P 500 down 1.65% this past week that VXST had more of a price reaction to the upside than longer dated volatility indexes.  Currently there is no simple way to gain exposure to such a move.  With VXST Futures and Options there will be.

Also, since the S&P 500 was down on the week volatility indexes reacted accordingly as did the long exchange traded products that are based on a VIX related strategy.   If the S&P 500 continues on the same path we may have the first ‘non-Santa Claus rally’ year since 2007.

Options ETNs