Derived from real-time S&P 500 Index option prices, VIX is designed to reflect investors' consensus view of expected stock market volatility over the next 30 days. Some market analysts consider VIX the "investor fear gauge" since during periods of financial stress, which are often accompanied by market declines, investors buy portfolio protection in the form of index options.
"As the home of index innovation, CBOE is proud once again to introduce an industry first to the marketplace - options on the CBOE Volatility Index, or VIX - the leading barometer of market sentiment and volatility," commented CBOE Chairman and Chief Executive Officer, William J. Brodsky. "The launch of VIX futures through our CBOE Futures Exchange twelve months ago has been met with tremendous enthusiasm and the expansion of the VIX brand into options is a natural progression for us and the continued evolution of our volatility-related product line. Options on VIX will provide investors many new opportunities to trade and hedge volatility."
Options on VIX will offer contract months of two near-term contracts months plus two additional months on the February quarterly cycle, and will have trading hours of 8:30 a.m. to 3:15 p.m. (Chicago Time). A more detailed listing of currently anticipated contract specifications for options on VIX follows.
CBOE Volatility Index
The CBOE Volatility Index - more commonly referred to as "VIX" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500 (SPX) index option bid/ask quotes. VIX uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index. The underlying for options is the Jumbo CBOE Volatility Index (VXB), equal to 10 times the value of VIX. For example, when the level of VIX is 12.81, VXB would be 128.10.
Options on VIX Contract Specifications:
- Ticker symbol: VXB
- Trading hours: 8:30 a.m. to 3:15 p.m. CT (Chicago Time).
- Price quotation: quoted in terms of the underlying Jumbo CBOE Volatility Index (VXB), equal to ten times the value of VIX.
- Strike price: strike prices are listed with minimum intervals of 2 ½ points. In-, at-, and out-of-the-money strike prices will initially be listed. New strikes can be added as the index moves up or down.
- Contract size: contract multiplier is $100 per point.
- Contract months: two near-term contracts months, plus two months in the February quarterly cycle may be listed.
- Minimum price intervals: Minimum tick for series trading below $3 is 0.05 ($5.00); above $3 is 0.10 ($10.00).
- Exercise style: European. CBOE Volatility Index options generally may be exercised only on the last business day before expiration.
- Termination of trading: the Tuesday prior to the Settlement Date of each month.
- Final settlement date: the Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the expiring month.
- Settlement of option exercise: the exercise-settlement value for VXB options shall be 10 times a Special Opening Quotation (SOQ) of VIX calculated from the sequence of opening prices of the options used to calculate the index on the settlement date. The opening price for any series in which there is no trade shall be the average of that option's bid price and ask price as determined at the opening of trading. Exercise will result in delivery of cash on the business day following expiration. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100.
CBOE, the world's largest options marketplace and the creator of listed options, is regulated by the Securities and Exchange Commission (SEC). For additional information about the CBOE and its products, visit the CBOE website at: http://www.cboe.com/.
