Betting On Panic: Cboe Global Markets Gears Up To Offer Options Tied To Futures For Wall Street's 'Fear Gauge'

As options demand booms, market engineers are gearing up to offer a perplexing new way to bet on volatility.

What To Know: According to a Bloomberg report, Cboe Global Markets is preparing to offer options tied to futures for the Cboe Volatility Index, which is already built using options.

The Volatility Index, or VIX, is calculated based on market pricing for options on the S&P 500. It’s often referred to as Wall Street’s “fear gauge,” as it’s designed to measure expected volatility over the next 30 days.

The VIX crossed the 65 level at the start of the week, surging from around 23 on Friday, and closed at its highest level since 2020. The VIX surge comes as demand for options products continues to boom as traders look for ways to place short-term bets or hedge against a potential downturn.

See Also: How To Navigate Market Volatility: 5 ETFs That Strengthen Your Portfolio During Stock Turmoil

The report indicates that current options on the VIX are cash-settled and traded in securities accounts, which limits access to investors constrained by mandates or regulations. The new volatility futures contracts will be physically settled and offer the option to trade in a futures account.

“By listing options on futures, this product will become CFTC-regulated, thereby enabling those investors to gain access to a VIX options product," Cboe Global Markets said.

"By combining Cboe's popular VIX futures with options functionality, this product will give market participants a new way to efficiently hedge market moves and construct unique exposures to volatility."

Cboe has found success in introducing the market to new trading vehicles. The Chicago-based firm started allowing options to expire on a daily basis two years ago, which spurred the zero-day options boom. Contracts that expire in a day or less now make up approximately 50% of total option volume for the S&P 500.

Cboe said last month that it planned to release a new version of the Cboe S&P 500 Variance Futures in September. The newly announced Volatility Index options contracts are expected to be listed on Oct. 14.

VIX Price Action: The Cboe Volatility Index was down 7.76%, hovering around 25.69 at the time of publication Thursday, according to Benzinga Pro.

Photo: Shutterstock.

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