The appeal of over-the-counter options on the VIX volatility index is picking up, in spite of the launch of exchange-traded options on the index in February. Equity volatility trading across the board has seen renewed interest since the U.S. rate rise stirred up markets, reported traders, but the popularity of OTC VIX contracts--which many expected to slacken off--has surprised some desks.
Demand seems to be coming mostly from hedge funds who want to take VIX positions anonymously, explained one New York hedge fund salesman. But customization of contracts in terms of maturity and strike, as well as the possibility of better margins, may also be behind the appeal, he added.
Traders, however, noted variance swaps are still by far the most popular method of buying or selling implied volatility. While Goldman Sachs--which was behind the methodology of the revamped VIX index--and a handful of other firms are actively making markets in VIX instruments, other houses are still on the sidelines.