• Newly redesigned product aims to bring OTC variance swaps trading to the exchange-listed market
• Simplifies trading and settlement, while offering benefits of price discovery, central clearing and liquidity
• Product addresses customer feedback and improves upon Cboe’s previous variance futures offerings

Cboe Global Markets, the world’s leading derivatives and securities exchange network, announced plans to launch a newly redesigned Cboe S&P 500 Variance Futures contract (Ticker: VA), which is expected to begin trading on September 23, 2024, subject to regulatory review.

The Cboe S&P 500 Variance Futures contracts will settle based on a calculation¹ of the annualized realized variance of the S&P 500 Index. The realized variance will be calculated once each day from a series of values of the S&P 500 Index beginning with the closing index value on the first day a VA futures contract is listed for trading and ending with the special opening quotation (SOQ) of the S&P 500 Index on the final settlement date of that contract.

Cboe’s new VA futures aim to introduce a simplified approach to variance trading and settlement, providing an exchange-listed alternative to over-the-counter (OTC) variance swaps. Market participants may use these futures in connection with calculating forward implied volatility, managing and hedging against volatility risks, or expressing directional views. Trading within a regulated and transparent on-exchange environment, VA futures are designed to also provide market participants with the additional benefits of price discovery, central clearing and an easily accessible structure.

Cboe introduced its first S&P 500 variance futures product in 2004, followed by several iterations in the following years. The latest product improves upon Cboe’s previous offerings and aims to address feedback from a broad spectrum of market participants. As such, the redesigned futures leverage a more straightforward methodology and will quote and trade directly in variance units with a contract size of $1², allowing for easier calculations and position management. Furthermore, the new VA futures correspond to and expire on the same dates as standard S&P 500 Index (SPX) options, which settle on the third Friday of the month. This alignment is expected to offer investors enhanced flexibility in managing variance exposure and implementing more precise hedging and trading strategies.

“Our relaunch of Cboe S&P 500 Variance Futures is another example of Cboe continually refining its offerings to meet customer demand,” said Rob Hocking, Head of Product Innovation at Cboe. “Following our previous variance products, we have engaged in close dialogue with our clients to gather insights that have been instrumental in shaping this new iteration. We believe this new version will be more accessible, capital-efficient and user-friendly, providing a way to more easily replicate OTC variance swap exposures without the operational complexities. Additionally, the final phases of the Uncleared Margin Rules have increased the costs of holding OTC derivatives for some market participants. Given the broader regulatory landscape, we believe the current environment is ideal for this relaunch.”

“The new iteration of the Cboe S&P 500 Variance Futures contract reinforces the S&P 500’s ongoing strength as the best single gauge of the U.S. equity market and its highly liquid ecosystem,” said Tim Brennan, Head of Capital Markets at S&P Dow Jones Indices. “By collaborating with Cboe, market participants will have another tool to further understand opportunities for managing variance as well as risks within the world’s most liquid equity benchmark.”

The new VA futures will be exclusively listed and traded on Cboe Futures Exchange, LLC (CFE), joining other prominent volatility futures, such as Cboe Volatility Index (VIX) futures and the planned launch of Weekly Options on Cboe Volatility Index Futures and Cboe S&P 500 Dispersion Index (DSPX) futures, subject to regulatory review.

Cboe will be hosting a webinar on the key benefits and opportunities provided by the new Cboe S&P 500 Variance Futures on Tuesday, July 23 at 8:30am ET. To register for the webinar, please click here. For more information about Cboe S&P 500 Variance Futures, please visit: Cboe S&P Variance Futures.

Source: Cboe