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S&P 500 Variance futures
A listed alternative to OTC variance swaps, Cboe S&P 500 Variance (VA) Futures deliver pure volatility exposure with exchange efficiency, standardized terms, and simplified access.
Cboe VA Futures provide a listed, centrally cleared alternative to OTC variance swaps—eliminating complexity while delivering pure volatility exposure.
Client:
Asset Manager
Challenge:
Hedge against a potential spike in equity volatility
Background:
An asset manager that holds a large equity portfolio is looking for a tactical hedge against rising volatility ahead of potential catalysts (e.g. Federal Reserve decision, US election, etc.) that could negatively impact their portfolio. This use case explores the pros and cons between various hedging instruments and how an asset manager may be able to use VA futures as a hedging tool.
Read the full use case study| Feature | Cboe S&P 500 Variance Futures | OTC Variance Swaps |
|---|---|---|
| Exchange Traded | Yes | No |
| Centrally Cleared | Yes (OCC) | No |
| Counterparty Risk | Migrated through central clearing | Bilateral, can be significant |
| Contract Design | Straightforward, trades in variance units | Customizable, but complex |
| Settlement | Final settlement is the annualized variance of the S&P 500 Index over the life of a contract | Customizable, often based on realized variance |
| Execution Flexibility | Supports block trades and ECRPs, seamless transition from OTC | Highly flexible, but OTC-specific |
| Liquidity | Lead Market Maker Program | Varies, depends on counterparty relationships |
| Accessibility | Available to a wide range of market participants who have access to futures markets, including through an FCM. | Limited to institutional investors with ISDA agreements |
| Regulatory Compliance | Standardized terms, transparent rulebook | Challenges posed by uncleared margin rules (UMR). Subject to Dodd Frank business conduct rules and swap reporting obligations. |
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The S&P 500 Index is a product of S&P Dow Jones Indices LLC ("S&P DJI"), and the S&P 500 Index has been licensed to Cboe Exchange, Inc. for the purposes of creating the Cboe S&P 500 Variance Indicator. “Variance Indicator” means a series over time of realized or implied variance values, which series uses as input for its calculation, among other values, one or more of the following values: the value of one or more Standardized Options Contracts based on a Underlying S&P Index, the value of another financial interest based on an Underlying S&P Index, or the value of an Underlying S&P Index. S&P®, S&P 500®, SPX®, DSPX®, DSPBX, US 500 and The 500 are trademarks of S&P DJI or its affiliates, and have been licensed by Cboe Exchange, Inc. for certain purposes. Cboe S&P 500 Variance Futures settling into the Cboe S&P 500 Variance Indicator are not issued, marketed, sponsored or promoted by S&P Dow Jones Indices or its affiliates, and S&P DJI will have no liability with respect thereto.
