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Stocks in this article: CBOESPYSPXVIX

Exactly two years ago the Chicago Board Options Exchange (CBOE) launched a new index options product that matched the market-leading S&P500 (SPX) option specs except for two important factors: 1. End-of-day (PM) expiration and 2. Electronic listing on the C2 electronic exchange (owned and operated by CBOE). The listing was moved from C2 to the CBOE's hybrid electronic system earlier this year.

Some in the industry saw the launch as a response to industry pressure for multi-listing of the SPX, which is one of the last pit-traded single-listed products. SPX has been the dominant index product for nearly two decades (after OEX faded out in the 90s) and sees about 800,000 contracts of daily volume- which is even more impressive when you consider the index level of 1693- converted to SPY options this would be 8 million contracts- fully half the market-wide daily option volume. Tight markets and very deep liquidity keep SPX the choice of institutional hedgers and portfolio managers- with nearly $2billion of premium trading on a typical day.

SPXPM had a slow start- in part because the screen-displayed liquidity paled in comparison to the pit-quoted markets, and in part because many big-bank SPX traders like the high-touch pit-traded model where massive blocks can be executed cleanly by highly skilled floor-brokers - some of whom have held their 18 inch by 18inch floor spots for decades (I'm talking about you Sammy, Ronnie, Marno and Joe!)

Average daily volume in SPXPM over the past two years has been about 6000 contracts per day- just under 1% of the SPX flow, and many SPX traders haven't paid much attention to the product. Open interest has seen better growth, in part because of 'flex' contracts rolling into the SPXPM when listed-contract specs match the pre-existing flex contracts.



After a slow start, CBOE officials may have received a birthday present this week; a record-breaking SPXPM spread trade totaling 52,000 contracts traded to double the outstanding put open interest and possibly 'break the ice' for institutional acceptance of SPXPM. After 'shopping' the spread around the SPX pit first around noon eastern time, a trader paid 95cents to $1 for a total of 26,000 SPXPM Oct 1500-1550 put spreads to open a massive position that may hedge more than 4billion dollars of notional value.



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