On Thursday, Chicago Board Options Exchange? (CBOE?) launched its?CBOE Short-Term Volatility IndexSM?(VXSTSM?Index or ?Short-Term VIX Index?) options with weekly expirations?and?reported after the close, its first-day trading volume totaled an estimated 3,134 contracts.?
CBOE Holdings CEO Edward T. Tilly said via a press release,??We were pleased to see a very active opening day of trading in Short-Term VIX options, with strong volume and broad market participation. Short-Term VIX options bring a new dimension for volatility trading to the market, and it is clear from today?s activity that market participants see tremendous utility for the contract.?
CBOE developed VXST options in response to the proven demand for WeeklysSM options generally, and volatility contracts that measure a shorter time period in particular. Similar to the VIX, the Short-Term VIX Index reflects investors’ consensus view of expected stock market volatility using CBOE?s proprietary VIX methodology.?
Both indexes use S&P 500? Index (SPXSM) options in their calculations.?
Whereas the VIX Index uses SPX monthly options to measure expectations of 30-day volatility, the VXST Index uses SPX options that expire every week (including SPX Weeklys) to gauge expectations of nine-day volatility.?
The 30-day VIX Index and the nine-day VXST Index are highly correlated, but the VXST Index is generally more volatile than the VIX Index. ??
In addition to taking advantage of the shorter time horizon of Short-Term VIX Index products to respond to near-term market moves, VXST options have weekly expirations and a similar settlement process as VIX options and futures, enabling traders to create strategies using VXST and VIX to capture changes in the volatility term structure. ?
In February, the CBOE Futures Exchange, LLC (CFE?) launched trading of VXST futures. ??