CBOE CEO Edward Tilly on “The Evolving VIX Story”

Day Two of RMC kicked off with a welcome from CBOE CEO Edward Tilly to the 300+ in attendance.  He noted “the agenda for our 30th year at RMC reminds me that we are really at the beginning of the evolving VIX story.”

As volume in CBOE’s VIX options and futures continues to hit record levels, interest is building and new customers are being drawn to the volatility space.  Hedge funds and prop firms are using VIX futures to “capture vol risk premiums and small pricing anomalies” between VIX futures and options and related instruments, while fixed-income traders are employing VIX futures calendar spreads.

Trading in VIX options continues to be driven by the growing sophistication of the VIX user base and the ability to use VIX options for “longer-term hedging strategies and to fine-tune specific risk exposures.”  Tilly also noted that complex and large orders account for over half of all VIX options activity.   On a broader level, the exchange is encouraged to see the more mainstream adoption of VIX trading for asset allocation by a wide variety of investors.

Turning to the VIX futures extended trading hours initiative, Tilly noted that launch of an additional 5 hours and 45 minutes to the trading day last October is off to a good start.  He then announced plans to further expand VIX futures trading to nearly 24 hours a day, 5 days a week, beginning June 22.  He also mentioned that plans are in the works to offer expanded trading hours for SPX and VIX options later in 2014.

Tilly then highlighted the new CBOE Short-Term Volatility Index (VXST), which was unveiled at RMC Europe in Portugal last October.  CBOE views short-term volatility as a major new trading frontier.  VXST futures launched in February and it was announced last week that VXST options are expected to begin trading April 10.

The Short-Term VIX uses SPX options that expire in one week in its methodology, as opposed to the monthly expirations used by VIX.  “Predictably,” Tilly said, “Short-Term VIX tends to be more volatile than VIX.”  Short-Term VIX futures and options enable traders to fine tune the timing of their volatility trades to pinpoint and hedge against event-driven market moves.  Because they also share a similar settlement process with VIX futures and options, Tilly foresees “compelling trading opportunities.”

Tilly concluded his remarks with a personal note, saluting CBOE’s Vice President of Research and Product Development, Joe Levin, who is retiring from CBOE after 34 years of service later this summer.  Joe was instrumental in the development of many CBOE innovations, including index options, LEAPS, FLEX, BXM, Weeklys and VIX.

RMC is in full swing. Stay tuned for more highlights.