As Good As Gold VIX

• Posted by Adam Warner
• on March 8th, 2010

So, love getting confused by VIX futures?  Well, you’re in luck. Someday soon, you’ll be able to get perplexed Volatility Futures in a host of products, thanks to the CME. (hat tip Abnormal)

CME Group, the world’s leading and most diverse derivatives marketplace, today announced it has entered into a seven-year license agreement with the Chicago Board Options Exchange (CBOE) that will allow CME Group to list futures and options on futures for volatility indexes on a variety of asset classes. These contracts will be listed with, and subject to, the rules and regulations of the particular exchange where the products will be traded (CME, CBOT or NYMEX).

“Our liquid and transparent commodity and financial markets are the foundation for the creation of new indexes that customers can use to gain a view on volatility across a wide array of asset classes,” said Scot Warren, CME Group Managing Director of Equity Index Products and Services. “We believe that a reliable benchmark index for volatility sentiment on contracts such as WTI Crude Oil, Corn, Soybeans and Gold will help market participants make more effective investment and hedging decisions based on their exposure to market volatility.”

If they behave anything like our own beloved VIX, then all the futures will overprice in virtual perpetuity to account for that occasional tail where you get your face absolutely ripped off selling it.

I’m always in favor of more product listings though. If they don’t get any liquidity, there’s no oblgation to ever trade them. If they do, then great, sometimes a nice vehicle is born. It will be interesting actually to see how a gold volatility product trades in relation to the regular VIX. In general, the volatility trends follow each other (and really across all asset classes). But gold’s volatility does not move quite as much as market volatiltiy. It peaked at 50 in the market implosion, and has also not declined to the same extent on the way back. If GoldVIX futures trade at a steady premium to cash GoldVIX, it’s an even better sale than regular VIX futures imho. We’ll see though.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus