On March 26, investors will be able to trade the VIX future, which will supposedly help them hedge the volatility risk of their portfolios. But the caveat "past performance is no guarantee of future performance" has never been more applicable than it is with this product.The Chicago Board Options Exchange Volatility Index (VIX) is a leading measure of investor sentiment. VIX futures will trade under the symbol VX, and they will track the level of the Jumbo CBOE Volatility Index (VXB), which is 10 times the value of VIX. The contract size is 100 times the value of VXB. For example, a contract will cost $18,500 if the VIX is 18.5. The last trading day is the Tuesday prior to the third Friday of the month. Several structural problems make the VIX future an unreliable hedging instrument. The Chicago Board Options Exchange suggests several strategies for using the new product, but examine them carefully before you start trading. CBOE.com suggests trading the new financial instrument for these purposes:
- To take advantage of a market view on the direction of near-term volatility. To hedge volatility risk. To manage risks associated with the growing markets for volatility and variance swaps. To take advantage of arbitrage opportunities between S&P 500 options and VIX futures and options.
- To take advantage of a market view on near-term volatility.
- To hedge volatility risk.
- To manage risks associated with the growing markets for volatility and variance swaps.
- To take advantage of arbitrage opportunities between S&P 500 options and VIX futures.