CBOE S&P 3-month variance futures

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CBOE S&P 500 Three-month Variance futures, one of the futures contracts based on “variance” and on “volatility” and listed on the CFE , was introduced for trading on May 18, 2004. It is based on based on the realized variance of the S&P 500 Composite Stock Price Index ("S&P 500"). The contract was delisted on October 12, 2012.

Contract Specifications

TICKER SYMBOL VT
PRICING QUOTATION Quoted in terms of variance points. Variance points are defined as realized variance multiplied by 10,000. For example, a variance calculation of 0.06335 would have a corresponding price quotation in variance points of 633.50.
CONTRACT SIZE $50 per variance point. For example, using a price quotation of 633.50 variance points, the contract size of one variance futures contract would be $31,675.00 (633.50 x $50).
MINIMUM PRICE INTERVALS/DOLLAR VALUE PER TICK 0.50 of one variance point, equal to $25.00 per contract
CONTRACT MONTHS Up to 4 contract months on the March quarterly cycle (March, June, September, December)
TRADING HOURS 8:30 a.m. - 3:15 p.m. Central Time (Chicago Time)
TRADING PLATFORM CBOEdirect
LAST TRADING DAY The close of trading on the day before the Final Settlement Date
FINAL SETTLEMENT DATE The third Friday of the expiring month
REPORTABLE POSITION LEVEL 25 contracts
CROSSING CFE Rule 1202(h) - Crossing Two Original Orders. The eligible size for an original Order that may be entered for a cross trade with another original Order is one Contract. The request for quote response period for the request for quote required to be sent before the initiation of a cross trade is 5 seconds. Following the request for quote response period, the Trading Privilege Holder or Authorized Trader, as applicable, must expose to the market for at least 5 seconds at least one of the original Orders that it intends to cross.
BLOCK TRADING CFE Rule 415(a)(i) - Block Trades. The minimum Block Trade quantity for the CBOE S&P 500 Three-Month Variance futures contract is 100 contracts. If the Block Trade is executed as a spread or a combination, one leg must meet the minimum Block Trade quantity for the CBOE S&P 500 Three-Month Variance futures contract and the other leg(s) must have a contract size that is reasonably related to the leg meeting the minimum Block Trade quantity. Pursuant to Rule 415(f), the seller is obligated to call the Help Desk without delay, but no later than ten minutes after a Block Trade is negotiated, to notify the Exchange of the terms of the trade, including information identifying the relevant Contract, contract month, price or premium, quantity, time of execution, counterparty Clearing Member for each Block Trade and, if applicable, the underlying commodity, whether the transaction involved a put or a call and the strike price and any other information that is required to be set forth in the prescribed Block Trade Reporting Form.
NO-BUST RANGE CFE Rule 416. The CFE error trade policy may only be invoked for a trade price that is greater than 10% on either side of the market price of the applicable CBOE S&P 500 Three-Month Variance futures contract. In accordance with Policy and Procedure III, the Help Desk will determine what the true market price for the relevant Contract was immediately before the potential error trade occurred. In making that determination, the Help Desk may consider all relevant factors, including the last trade price for such Contract, a better bid or offer price, a more recent price in a different contract month and the prices of related contracts trading in other markets.
POSITION LIMITS CFE Rule 1302 (d) - A person may not own or control more than 5,000 contracts net long or net short.

For the purposes of this rule, the positions of all accounts directly or indirectly owned or controlled by a person or persons, and the positions of all accounts of a person or persons acting pursuant to an expressed or implied agreement or understanding shall be cumulated.

The foregoing position limit shall not apply to bona fide hedge positions meeting the requirements of Commission Regulation §1.3(z)(1) and the rules of the Exchange.


Details

Final Settlement Price

The final settlement value for CBOE S&P 500 Three-Month Variance futures contracts is based on a standardized calculation of the realized variance for the S&P 500. This calculation uses continuously compounded daily returns for a three-month period assuming a mean daily price return of zero. The calculated variance is then annualized assuming 252 business days per year. The final settlement value is this annualized, calculated variance multiplied by 10,000.

For purposes of calculating the settlement value, the three-month realized variance is calculated from a series of values of the S&P 500 beginning with the Special Opening Quotation ("SOQ") of the S&P 500 on the first day of the three-month period, and ending with the S&P 500 SOQ on the last day of the three-month period. All other values in the series are closing values of the S&P 500. For example, the final settlement value for a CBOE S&P 500 Three-Month Variance futures contract expiring on Friday, September 17, 2004, would be calculated using the S&P 500 SOQ on Friday, June 18, 2004, the closing prices of the S&P 500 from Monday, June 21, 2004 through Thursday, September 16, 2004, and the S&P 500 SOQ on Friday, September 17, 2004. (Though the previous example is dated, it nonetheless illustrates the principle well.)

Variance Formula

Realized Variance Formulav.gif

where:

  • Ri = ln(Pi+1/Pi) - Daily return of the S&P 500 from Pi to Pi+1
  • Pi+1 - The final value of the S&P 500 used to calculate the daily return.
  • Pi - The initial value of the S&P 500 used to calculate the daily return.
  • Ne = Number of expected S&P 500 values needed to calculate daily returns during the three-month period. The total number of daily returns expected during the three-month period is Ne - 1.
  • Na = The actual number of S&P 500 values used to calculate daily returns during the three-month period. Generally, the actual number of S&P 500 values will equal the expected number of S&P 500 values (represented by Ne). However, if one or more "market disruption events" occurs during the three-month period, the actual number of S&P 500 values will be less than the expected number of S&P 500 values by an amount equal to the number of market disruption events that occurred during the three-month period. The total number of actual daily returns during the three-month period is Na - 1.

Market Disruption Events

  • (i) the occurrence or existence, on any trading day during the one-half hour period that ends at the Scheduled Close of Trading, of any suspension of, or limitation imposed on, trading on the primary exchange(s) of the companies comprising the S&P 500 in one or more securities that comprise 20 per cent or more of the level of the S&P 500; or
  • (ii) if on any trading day the one or more primary exchange(s) determines to change the Scheduled Close of Trading by reducing the time for trading on such day, and either no public announcement of such reduction is made by such exchange or the public announcement of such change is made less than one hour prior to the Scheduled Close of Trading; or
  • (iii) if on any trading day one or more primary exchange(s) fails to open and if in the case of either (i) or (ii) above, in the determination of CFE, such suspension, limitation, or reduction is deemed material. "Scheduled Close of Trading" means that time scheduled by each applicable exchange, as of the opening for trading in the applicable equity security, as the closing time for the trading of such equity security comprising the S&P 500 on the trading day.

Generally, if CFE determines that a market disruption event has occurred on a trading day, then the value of the S&P 500 on that day will be omitted from the series of values used to calculate three-month realized variance. For each such market disruption event, the value represented by Na in the standardized formula will be reduced by one.

If a market disruption event occurs on the Final Settlement Date, the final settlement value for CBOE S&P 500 Three-Month Variance futures will be determined in accordance with the Rules and By-Laws of The Options Clearing Corporation ("OCC"). These Rules and By-Laws list actions that may be taken if a final settlement value is unavailable or the normal settlement procedures cannot be utilized. Such actions include, but are not limited to, postponing the Final Settlement Date until the first succeeding trading day in which a market disruption event has not occurred. It is intended that the value of the S&P 500 on the final day in the three-month period, which is used in the calculation of the three-month realized variance for the CBOE S&P 500 Three-Month Variance futures contract, will equal the corresponding final settlement price for expiring series of S&P 500 options listed on the Chicago Board Options Exchange. Once the calculation period for three-month realized variance begins, the value represented by Ne will not change regardless of the number of market disruption events that occur during the three-month period, even if the Final Settlement Date is postponed. If the Final Settlement Date of the expiring futures contract is postponed, the calculation period for the next three-month realized variance will be shortened by the number of market disruption events that occurred at the beginning of the period. Likewise, the value represented by, Ne, will be reduced by the number of market disruption events that occurred at the beginning of the period. The first daily return of the shortened period for the next three-month realized variance will be calculated using the same procedure as described above (the initial value for the first daily return is the SOQ of the S&P 500 on the first day of the period and the final value for the first daily return is the closing value of the S&P 500 on the following trading day). For example, if the Final Settlement Date for the previous three-month realized variance is postponed to Tuesday, the initial value for the first daily return of the next three-month realized variance would be calculated using the SOQ of the S&P 500 on Tuesday morning and the closing value of the S&P 500 on Wednesday.

As soon as practical under the circumstances, CFE will notify Trading Privilege Holders of the existence of a market disruption event. Failure to provide such notice will have no effect on the determination by CFE that a market disruption event has occurred.

References

CBOE S&P 500 3-Month Variance Futures. Chicago Board Options Exchange.