ASX Launches Futures Product for Trading Equity Market Volatility
The new S&P/ASX 200 VIX futures will allow market participants to trade anticipated changes in volatility in a single transaction and in a manner independent of the factors that normally complicate volatility strategies, such as expiring options and price movements in the underlying market.
The S&P/ASX 200 VIX index (A-VIX), Australia’s equity market volatility benchmark, will be the underlying index for the new futures contract. S&P/ASX 200 VIX futures will allow users to isolate local equity market volatility and avoid the timing, currency and matching risk incurred when using volatility products based on offshore indices.
ASX Deputy CEO Peter Hiom said: “ASX is committed to providing new products to meet the changing needs of the market. One of those needs is the ability to trade in volatility as an asset class in its own right.S&P/ASX 200 VIX futures will provide users with the opportunity to more easily and efficiently hedge their investment portfolios against volatility, while also providing new trading opportunities.”
“The launch of S&P/ASX VIX futures is set to change how investors can measure and trade the financial markets in Australia,” says Alex Matturri, CEO of S&P Dow Jones Indices. “Combining the premier global measure of market volatility, the VIX, with the principal Australian equity benchmark, the S&P/ASX 200, will provide Australian investors with an essential means of managing equity market risk in their portfolio.”
Dedicated market makers will provide liquidity for the futures contract, which will be listed alongside the current ASX SPI 200TM contract to provide additional trading opportunities.
S&P/ASX 200 VIX Futures:
* A futures product is a financial derivatives contract obliging the buyer to purchase the contract or the seller to sell the contract at a predetermined future date and price.
* S&P/ASX 200 VIX futures can be used either to hedge or to speculate on movement in the S&P/ASX 200 VIX based on whether the investor expects high or low levels of volatility.
* Can be used to exploit the negative correlation between S&P/ASX 200 VIX and the S&P/ASX 200 to hedge equity portfolios.
* Enable investors to diversify their portfolios by adding volatility as an asset class, with a low or negative correlation to other asset classes including the AUD/USD exchange rate.
* Allow users to take advantage of pricing differentials between other volatility indices and the term structure of volatility.