CHICAGO, July 26, 2012 /PRNewswire/ -- Beginning tomorrow, Friday, July 27, the Chicago Board Options Exchange (CBOE) will introduce a process for trading SPX Variance Strips (ticker: VSTRP).
SPX Variance Strips are designed to electronically trade a large and complex portfolio of S&P 500 options (SPX) in a single transaction, replicating S&P 500® implied variance exposure. Additionally, "V-Strips" will employ a quoting convention similar to that used in over-the-counter (OTC) variance trading.
Upon execution, matched SPX Variance Strip trades will be sent to a special post-trade system ("BasketWeaver(SM)") and will be broken up into as many as one thousand SPX contracts, which are then cleared by the Options Clearing Corporation (OCC)."SPX Variance Strips add another unique way for customers to trade CBOE's growing family of exclusive S&P index offerings. Each of our S&P 500 index products meets specific customer needs in trading the S&P 500, and our new SPX Variance Strip process is expressly aimed at qualified professionals, including OTC users," CBOE Chairman and CEO William J. Brodsky said. "At the core of creating SPX Variance Strips for these customers was the ability of our in-house systems team to customize the trading technology required to accommodate its unique construction. The new technology we designed to trade 'V-Strips' – called 'BasketWeaver' – is a prime example of how systems development can be leveraged to power product innovation at CBOE." A detailed description of the SPX Variance Strip process, as well as a link to daily updates of information on the SPX options comprising SPX Variance Strips, can be accessed at http://www.cboe.com/VarianceStrips. Among the points about SPX Variance Strips:
- Prices will be quoted in volatility points (similar to OTC).
- Trade quantities will be expressed in contracts; each variance strip "contract" features a multiplier (e.g., $25,000, $50,000, etc.) that reflects the aggregate vega exposure – sensitivity to the underlying instrument's volatility – of the SPX options comprising the variance strip.
- The expiration date of the SPX variance strip will correspond to the expiration date of the SPX options series.