CBOE Plans Process To Trade SPX Variance Strips


The Chicago Board Options Exchange (CBOE) has announced that it plans to introduce, starting July 27, a process for trading SPX Variance Strips -- a portfolio of S&P 500 Index options (SPX) intended to replicate S&P 500 implied variance exposure -- in a single transaction.

Trading in SPX Variance Strips (ticker: VSTRP) will be fully electronic, aimed at qualified professional investors, and employ a special quoting convention similar to the over-the-counter (OTC) method for quoting variance swaps. Specifically:

  • Prices will be quoted in volatility points.
  • 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.

Immediately after an SPX Variance Strip trade is executed, it will be broken up into individual transactions in several SPX options series. The conversion process, which uses the formula for the CBOE Volatility Index (VIX), determines the quantity and price for each SPX option comprising the matched variance strip. The SPX option transactions are then sent to the Options Clearing Corporation (OCC) for clearing.

Additional information on SPX Variance Strips can be found in Information Circular IC12-046 at http://www.cboe.com/VarianceStrips.