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CME to List Volatility Futures


It will be interesting to see how a gold volatility product trades in relation to the regular VIX.


So, love getting confused by VIX futures? Well, you're in luck. Someday soon, you'll be able to get perplexed Volatility Futures in a host of products, thanks to the CME. (Hat tip Abnormal.)

CME Group (CME), the world's leading and most diverse derivatives marketplace, today announced it has entered into a seven-year license agreement with the Chicago Board Options Exchange (CBOE) that will allow it to list futures and options on futures for volatility indexes on a variety of asset classes. These contracts will be listed with, and subject to, the rules and regulations of the particular exchange where the products will be traded (CME, CBOT, or NYMEX).

"Our liquid and transparent commodity and financial markets are the foundation for the creation of new indexes that customers can use to gain a view on volatility across a wide array of asset classes," said Scot Warren, CME Group managing director of Equity Index Products and Services. "We believe that a reliable benchmark index for volatility sentiment on contracts such as WTI Crude Oil, Corn, Soybeans, and Gold will help market participants make more effective investment and hedging decisions based on their exposure to market volatility."

If they behave anything like our own beloved VIX, then all the futures will overprice in virtual perpetuity to account for that occasional tail where you get your face absolutely ripped off selling it.

I'm always in favor of more product listings though. If they don't get any liquidity, there's no obligation to ever trade them. If they do, then great, sometimes a nice vehicle is born. It will be interesting, actually, to see how a gold volatility product trades in relation to the regular VIX. In general, the volatility trends follow each other (and really across all asset classes). But gold's volatility doesn't move quite as much as market volatility. It peaked at 50 in the market implosion, and has also not declined to the same extent on the way back. If GoldVIX futures trade at a steady premium to cash GoldVIX, it's an even better sale than regular VIX futures in my opinion. We'll see though.

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