Options Trading News

December 25, 2012  Tue 4:41 AM CT

Volatility may not be rocketing higher, but the market in volatility products certainly is.

This can be clearly seen in the VIX futures volume. On Friday 159,000 futures traded, following 120,000 on Thursday, 132,000 on Wednesday, 143,000 on Monday, and 167,025 on Tuesday, which I believe is a new one-day record. This means that this will likely be the biggest ever week in VIX futures volume.

This may not sound all that impressive, but VIX futures are 10 times the size of the VIX options, and because they trade on the CFE only they can be quite difficult to get access to. That same exchange is where the CBOE rolled out their new S&P 500 Variance futures.

Unlike the VIX futures, which are based on implied volatility levels, the variance futures are based on the realized volatility of the S&P 500. Variance swaps were the predecessors of the VIX futures for institutional traders, but the CFE has now bought them onto an exchange and off the over-the-counter market.

The volume is still pretty light in the variance futures. Wednesday had 884 futures traded and  open interest of more than 5,500. But these futures are very new may still gain some traction, unlike some of the other volatility-based futures that the CFE has.

Finally, one of the exchange-traded notes based on those VIX futures, Credit Suisse's VelocityShares 2x VIX Short-Term ETN, has new life. The TVIX finished last week at $10.16, but only after it finally got a 10-1 reverse split. Before the split it had traded from above $100 last October to a low of $0.77 last week, as structural issues and generally lower volatility have taken a significant toll.

The fund also ran into a number of problems when Credit Suisse stopped issuing new shares for a time, leading to speculation that the firm would let the fund evaporate.
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