Cboe Global Markets launches new tool to help traders hedge against US stock volatility
The Chicago Board Options Exchange (CBOE) plans to launch an enhanced version of the CBOE S&P 500 Variance Futures, providing traders with a new tool to hedge against fluctuations in the US stock market. These contracts will allow traders to hedge the actual volatility of the S&P 500 Index, unlike the existing VIX contracts that reflect future expected volatility. Variance futures have already been traded in private transactions, and the revised exchange-traded futures contracts will be centrally cleared, helping to reduce costs and increase price transparency. With the potential increase in volatility in the US stock market, this new tool may meet traders' hedging needs
According to the Zhitong Finance and Economics APP, the Chicago Board Options Exchange (CBOE.US) hopes to provide traders with another way to hedge against fluctuations in the US stock market. The exchange already has options and futures on the widely watched Volatility Index (VIX) and is expected to start trading the enhanced CBOE S&P 500 Variance Futures on September 23, subject to regulatory review.
CBOE stated that these contracts will allow traders to hedge the actual volatility of the S&P 500 Index (calculated based on daily trading ranges), as opposed to the existing VIX contracts that reflect expected future volatility. It is reported that CBOE first introduced variance futures in 2004. The company stated in a release that it has redesigned these contracts in a more direct manner and with other adjustments based on feedback from market participants.
With US stocks hitting new highs, the realized and implied option volatility of the S&P 500 Index has been suppressed, with the index not experiencing a 2% decline for over 350 consecutive trading days. However, questions about the timing of a possible Fed rate cut and the upcoming US presidential election in the second half of this year may disrupt this calm.
It is reported that variance futures have already been trading in private over-the-counter transactions. CBOE mentioned that the revised exchange-traded futures contracts will be centrally cleared, which will help reduce costs for firms and enhance price transparency. Traders can use cash-settled differential futures as part of an overall volatility hedging strategy along with volatility index futures and options