The Future of Futures:
Volatility to Rock Around the Clock
September 6, 2012
The CBOE Futures Exchange plans to triple trading hours in futures contracts pegged to the CBOE Volatility Index to “virtually 24 hours,” five days a week, starting next year.
Trading in the VIX Index, which measures expected volatility in Standard & Poor’s 500 stocks, currently takes place eight hours a day.
As part of the ramp-up to around-the-clock trading in the VIX, the futures exchange will create an operating hub next year in a London data center. The hub will funnel European trades onto the exchange.
"Our customers have access to the most comprehensive array of volatility products in the world, and we continually work to create new, more flexible ways for them to trade these products,’’ chairman and CEO William J. Brodsky said at CBOE Holdings’ risk management conference near Dublin. “Around-the-clock hours for VIX Index futures and a CFE London hub offer the ultimate in flexibility."
The first trading in futures involving the Volatility Index, aka VIX, took place on March 26, 2004 on the CBOE Futures Exchange. Options trading followed on February 24, 2006.
The goal of the VIX, also known as the Fear Index, is to estimate the implied volatility of the S&P 500 index for the next 30 days.
VIX Index futures will be the first contract traded on a CBOE Holdings exchange with around-the-clock access, five days a week. The plan awaits regulatory approval.
The 24-hour session aims to eliminate timing restrictions for investment banks, proprietary trading firms, hedge funds, Commodity Trading Advisors (CTAs) and issuers of exchange traded products.
Trading volume in the current early-morning VIX Index futures session from 7 a.m. to 8:30 a.m. Chicago time accounts for five percent of VIX Index futures trading volume.
The CBOE futures exchange currently offers nine contracts: CBOE Volatility Index (The VIX Index) futures (VX), Mini-VIX futures (VM), CBOE Nasdaq-100 Volatility Index (VXN) futures (VN), CBOE Gold ETF Volatility Index (GVZ) security futures (GV), CBOE Crude Oil ETF Volatility Index (OVX) security futures (OV), CBOE Emerging Markets ETF Volatility Index (VXEEM) security futures (VXEM), CBOE Brazil ETF Volatility Index (VXEWZ) security futures (VXEW), CBOE S&P 500 3-Month Variance futures (VT), and Radar Logic 25-Metropolitan Statistical Area (MSA) RPX Composite Index futures (RPXCP).
But VIX futures account for nearly all CFE trading. Here are the stats for September 5, 2012: