CBOE S&P 500 Variance Futures

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The CBOE S&P 500 Twelve-Month Variance futures contract was one of CBOE Futures Exchange's (CFE)futures contracts based on “variance” and on “volatility”. The contract, which was originally listed in 2006, was delisted in 2011.

Contract Specifications

CONTRACT SIZE: The contract multiplier for the S&P 500 Variance futures contract is $1 per variance unit. One contract equals one variance unit.
TRADING HOURS: 8:30 a.m. - 3:15 p.m. Chicago Time
TRADING PLATFORM: CBOEdirect
CONTRACT MONTHS: Correspond to the listed contract months for S&P 500 Index options listed on the CBOE.
SYMBOLS: Futures - VA
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.
PRICING CONVENTIONS: Futures prices stated in decimal format
MINIMUM PRICE INTERVALS: The minimum price interval is .05 volatility points.
DOLLAR VALUE PER TICK: $1 per variance unit. One contract equals one variance unit.
TERMINATION OF TRADING: The close of trading on the day before the final settlement date. When the last trading day is a CFE holiday, the last trading day for expiring CBOE S&P 500 Twelve-Month Variance futures contracts will be the business day immediately preceding the last regularly-scheduled trading day.
FINAL SETTLEMENT DATE: The third Friday of the expiring month.


Details

Indicative Values Provided for Contracts with Less Than One Year to Expiration

All March expirations:

  • Realized variance indicator - RIK
  • Implied variance indicator - IIK

All June expirations:

  • Realized variance indicator - RIU
  • Implied variance indicator - IIU

All September expirations:

  • Realized variance indicator - RTJ
  • Implied variance indicator - ITJ

All December expirations:

  • Realized variance indicator - RZW
  • Implied variance indicator - IZW

Final Settlement Value

The final settlement value based on a standardized calculation of the realized variance for the S&P 500. This calculation uses continuously compounded daily returns for a twelve-month period assuming a mean daily price return of zero. The calculated variance is then annualized assuming 252 business days per year.

For purposes of calculating the settlement value, the twelve-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 twelve-month period, and ending with the S&P 500 SOQ on the last day of the twelve-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 Twelve-Month Variance futures contract expiring on Friday, September 15, 2006 would be calculated using the S&P 500 SOQ on Friday, September 16, 2005, the closing prices of the S&P 500 from Monday, September 19, 2005 through Thursday, September 14, 2006 and the S&P 500 SOQ on Friday, September 15, 2006.

Delivery

Settlement of CBOE S&P 500 Twelve-Month Variance futures contracts results in the delivery of a cash-settlement amount on the business day immediately following the settlement date. The cash settlement amount on the final settlement date shall be the final mark to market amount against the final settlement price of the CBOE S&P 500 Twelve-Month Variance futures contract multiplied by $50.

Position Accountability

No more than 5,000 contracts net long or net short in all CBOE S&P 500 Twelve-Month Variance futures contracts combined. These position limits do not apply to positions that are subject to a position limit exemption meeting the requirements of SEC Regulations and CFE Rules.

Minimum Reportable Level

25 or more contracts

Variance Formula

Variance is a statistical measure of the variability of price returns relative to an average (mean) price return. For purpose of CBOE S&P 500 Twelve-Month Variance Futures, twelve-month realized variance is calculated using a standard formula that uses continuously compounded daily S&P 500 returns for a twelve-month period assuming a mean daily price return of zero, and is annualized assuming 252 business days per year. The term "daily return" refers to a calculation that uses two reference values, an initial value (Pi) and a final value (Pi+1), as formulated below.

The initial value for the first daily return in the twelve-month period is the SOQ of the S&P 500 on the first day of the twelve-month period and the final value for the first daily return is the closing value of the S&P 500 on the following trading day. The initial value for the last daily return in the twelve-month period is the closing value of the S&P 500 on the trading day immediately prior to the final settlement date and the final value for the last daily return is the SOQ of the S&P 500 on the final settlement date. For all other daily returns, the initial and final values are the closing values of the S&P 500 on consecutive trading days.

Formula, Realized Variance

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 twelve-month period. The total number of daily returns expected during the twelve-month period is Ne - 1.

Na = The actual number of S&P 500 values used to calculate daily returns during the twelve-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 twelve-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 twelve-month period. The total number of actual daily returns during the twelve-month period is Na - 1.

Market Disruption Event

  • (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 twelve-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 Twelve-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 twelve-month period, which is used in the calculation of the twelve-month realized variance for the CBOE S&P 500 Twelve-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 twelve-month realized variance begins, the value represented by Ne will not change regardless of the number of market disruption events that occur during the twelve-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 twelve-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 twelve-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 twelve-month realized variance is postponed to Tuesday, the initial value for the first daily return of the next twelve-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 to 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 Twelve-Month Variance Futures. CBOE Futures Exchange.

Last modified on 18 October 2012, at 02:58