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Cboe Global to Launch Trading in Mini VIX Futures on CFE

Zacks Equity Research
·4 min read

Cboe Global Markets, Inc. CBOE is set to introduce trading in Mini Cboe Volatility Index (VIX) futures (VXM futures) on Cboe Futures Exchange (CFE). The new launch, subject to regulatory approval, is likely to begin on Aug 10.

Cboe Global pioneered the trading of exchange-traded volatility products with its introduction of VIX futures (VX) in 2004, which enables market participants to trade their view of the future direction of the expected volatility of the S&P 500 Index. VIX futures assist the market participants to manage risk, generate alpha or diversify a portfolio and trade a liquid volatility product based directly on the VIX Index.

Also, the market participants see the opportunity to implement their views using volatility trading strategies as the VIX futures reflect the market’s estimate of the value of the VIX Index on various expiration dates in the future. Since 2004, 486.5 million VIX futures contracts have traded on CFE.

The newly launched mini contract adds to the achievement of VIX futures. It has been created in a bid to meet investor demand for a wider variety of tools to gain direct exposure to the VIX Index.

The product specifications of the mini contract are similar to that of VIX futures, with the exception of contract size. They are cash-settled futures on the Cboe Volatility Index ("VIX Index") having one-tenth of the contract size of Cboe Volatility Index futures and a $100 contract multiplier.

The mini contract has been launched with the intent to provide more flexibility in volatility risk management. The company expects the new product to appeal to a broad audience — Commodity Trading Advisors (CTAs), Futures Commission Merchants (FCMs), proprietary trading firms, institutional investors, and sophisticated retail investors.

It has been introduced with the intent to bring trading of VIX futures to a larger number of investors and cater to a variety of investment needs, and provide broad market volatility exposure in a more cost-effective contract. Further, it creates new opportunities for trading and provides additional tools for market participants to customize their own volatility strategies using the new Mini VIX futures.

Cboe Global offers trading across a diverse range of products in multiple asset classes and geographies, including options, futures, U.S. and European equities, exchange-traded products (“ETPs”), global foreign exchange (“FX”), and multiasset volatility products based on the VIX Index, recognized as the world’s premier gauge of U.S. equity market volatility.

The VIX Index is based on the mid-point of real-time quotes of SPX (S&P 500 Index exchange) options and is designed to reflect investors’ consensus view of future 30-day expected stock market volatility. The VIX methodology provides the basis for the creation of VIX options and futures. The settlement value of VIX derivatives is based on traded prices of SPX options.

Cboe Global’s Futures segment includes the business of the futures exchange, CFE, which lists VIX futures, futures on corporate bond indices, futures on AMERIBOR and other futures products. It also includes market data revenues generated from the sale of proprietary market data and from access and capacity services.

Shares of this Zacks Rank #3 (Hold) company have underperformed the industry in the past year. The stock has lost 19.8% compared with the industry’s decline of 3.2%. Nevertheless, its diversified product portfolio and strong liquidity position should drive the stock going forward.

Stocks to Consider

Some better-ranked stocks from the finance sector include MarketAxess Holdings Inc. MKTX, Equifax Inc. EFX and Fleetcor Technologies, Inc. FLT. While MarketAxess sports a Zacks Rank #1 (Strong Buy), Equifax and Fleetcor Technologies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MarketAxess operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. It surpassed estimates in three of the last four quarters, with the average positive surprise being 1.09%.

Equifax provides information solutions and human resources business process outsourcing services for businesses, governments, and consumers. It surpassed estimates in each of the last four quarters, with the average positive surprise being 4.23%.

Fleetcor Technologies operates as a business payments company that simplifies the way businesses manage and pay expenses. It surpassed estimates in each of the last four quarters, with the average positive surprise being 3.26%.

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