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April 1, 2014

CBOE Set to Trade Weeklies

By John D'Antona Jr.

The Chicago Board of Options Exchange has set an April 10 date for the trading of options with a weekly expiration date.

The short-term volatility indexed, or VIX options, or Short-Term Volatility Index contracts, will trade under the VXSTSM ticker beginning that Thursday, pending regulatory approval.

"We were pleased to introduce the Short-Term VIX Index in October, Short-Term VIX futures in February, and we now look forward to launching options on VXST," CBOE Holdings CEO Edward Tilly said in a release. "We foresee investors using these new volatility products to better manage near-term volatility risk, to hedge short-term positions impacted by both event-driven and unexpected market moves, and to create strategies using VXST and VIX futures and options to capture changes in volatility term structure."

According to the CBOE, the Short-Term Volatility Index and CBOE Volatility Index are complementary. Like the VIX Index, the VXST 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.

The VIX Index uses SPX monthly options to measure expectations of 30-day volatility, while the VXST Index uses SPX options that expire every week to gauge expectations of nine-day volatility. The VXST Index's shorter time horizon makes it responsive to short-term volatility triggered by market events such as corporate earnings and government reports.

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.

 

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