Everything You Need to Know About VIX Weekly Options

Short-term volatility players can now place their bets with weekly VIX options

by Elizabeth Harrow

Published on Oct 8, 2015 at 10:27 AM
Updated on Jun 24, 2020 at 10:16 AM

Between the launch of all-day breakfast at McDonald's and a 4-0 record for the Cincinnati Bengals, October 2015 is an amazing time to be alive. And for options traders and volatility wonks, the exciting news continues to roll in -- today, Oct. 8, marks the launch of weekly options on the CBOE Volatility Index (VIX).

You're probably already familiar with weekly options, which have exploded in popularity since they were first introduced by the Chicago Board Options Exchange (CBOE) in 2005. These short-term contracts have turned every week into expiration week, and allow speculators to place options trades with precision timing.

Likewise, VIX options have been around for a while. In a bit of a twist from traditional equity options, though, the underlying asset for VIX options is VIX futures -- not spot VIX. Additionally, VIX options expire on Wednesdays -- not Fridays. Plus, they're European-style contracts, which means they can only be exercised on expiration day.

The newly launched VIX weekly options will combine these unique features of VIX options with the pinpoint timing and short-term nature of weekly options. The contracts -- based on the recently launched corresponding weekly VIX futures -- will be listed on Thursdays and expire on Wednesdays, with up to six consecutive weekly expirations listed at once.

According to CBOE, "The closer VIX futures and options are to expiration, the more closely they generally track the VIX Index. By 'filling the gaps' between monthly expirations, investors may obtain new opportunities to establish short-term VIX positions, and fine-tune the timing of their hedging and trading activities."

VIX derivatives have turned into big business for CBOE Holdings, Inc (NASDAQ:CBOE), which maintains exclusive rights to list options and futures on its namesake volatility index. In its freshly released report on September 2015 activity, CBOE said average daily volume was up 40% year-over-year, with total volume in VIX futures jumping 41% annually to 5.3 million contracts.

That said, we don't recommend that VIX option rookies take the launch of weeklies as an opportunity to jump on the volatility derivatives-trading bandwagon. Due to the fairly complex nature of VIX options relative to equity options, it's best to leave these types of plays to traders who are already well-versed in VIX futures and options.

Meanwhile, outright skeptics will likely argue that the last thing traders need is more opportunities to trade VIX options. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, roughly 68% of VIX options expired worthless last month -- including nearly 59% of the calls in open interest, and more than 82% of puts.

For more information about the new weekly VIX options -- including symbology, futures settlement, and how the contracts differ from the CBOE Short-Term Volatility Index (VXST) -- you can check out CBOE's fact sheet.

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