(Bloomberg) -- Cboe Global Markets Inc. wants to give traders another way to hedge against volatility in the US stock markets.
The exchange, which already has options and futures on its closely-watched volatility index (VIX), expects revamped Cboe S&P 500 Variance Futures to begin trading on Sept. 23, subject to regulatory review. The contracts will allow traders to hedge against realized volatility — calculated from the trading range each day — in the S&P 500 index, Cboe said Monday in a statement. That differs from the existing VIX contracts that reflect expected swings in the future.
The S&P 500’s realized and implied options volatility has been dampened as stocks jumped to fresh records, with the benchmark going more than 350 consecutive sessions without a 2% drop. However, questions over the timing of potential Federal Reserve interest rate cuts and a contentious US presidential election in the second half of the year threaten to upset the calm.
Variance swaps are already traded off-exchange in private deals. The revamped exchange-traded futures contracts will be centrally cleared, which should help companies lower costs, according to the the firm, as well as increase price transparency. Traders may use the cash-settled variance futures as part of an overall volatility hedging strategy along with VIX futures and options.
Cboe, which first introduced variance futures in 2004, said in the statement it redesigned the contracts with a more straightforward methodology and other adjustments after receiving feedback from market participants.
“Following our previous variance products, we have engaged in close dialog with our clients to gather insights that have been instrumental in shaping this new iteration,” said Rob Hocking, head of product innovation at Cboe.
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