Cboe Explores Bringing Crypto-Style Perpetual Futures to VIX Index
Wall Street fear gauge may adopt crypto trading structure
Cboe Global Markets is exploring the launch of perpetual futures for the VIX, the stock market’s well-known \"fear gauge.\" The move would bring a trading tool popularized by the cryptocurrency industry to traditional financial markets.
The VIX Index measures expected volatility in the S&P 500 for the next 30 days. It typically rises when investors buy options—financial contracts used to bet on or protect against price movements—during market downturns.
Understanding perpetual futures versus traditional contracts
Perpetual futures are a type of derivative that does not have an expiration date. In traditional markets, futures contracts eventually expire, forcing traders to \"roll over\" their positions into new contracts. This process can be expensive and can reduce overall returns for investors.
Perpetual contracts use a mechanism called a funding rate to keep the price of the contract close to the actual market price. This allows traders to focus on the direction of the market without worrying about their contracts ending.
Current status of the Cboe proposal
The plans for VIX perpetual futures are still in the early stages. There are currently no official contract specifications or regulatory filings. While some crypto exchanges already offer similar products linked to the VIX, those markets currently have very low trading volume and liquidity.
Why this matters for volatility traders
If launched, perpetual futures could make trading the VIX more efficient. By removing expiration dates, investors could avoid the costs and decay associated with traditional futures rollovers. This could attract more participants to the volatility markets and lead to better alignment between different VIX-related products.
Challenges and remaining uncertainties
It remains unclear how the funding rate would work for an index that cannot be bought as a physical asset. Unlike Bitcoin, the VIX is a mathematical calculation. This presents a challenge for market makers, who usually buy and sell the underlying asset to manage their risks. Analysts note that while removing expiration dates helps, it does not eliminate the basic costs and risks of hedging.
Sources
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