The Chicago Board Options Exchange is planning to roll out so-called variance strips, aimed at replicating S&P 500 implied variance. It also planning to launch S&P realized variance futures, and a new version of its FLEX options platform. All three could siphon interest by insurers and pensions from the over-the-counter market.
The products are being rolled out specifically because of interest by insurers and pensions to customize exchange-traded options, via the FLEX platform, and to hedge variable annuity risk through variance investments, said William Brodsky, chairman and ceo of the CBOE, in a keynote speech at the companies’ Risk Management Conference in Bonita Springs, Fla., Monday morning. The company, which recently extended expirations on its exchange-traded S&P 500 options to five years, is also considering extending expiries to 15 years to attract the same investors, added Brodsky.
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Brodsky commented that the changes were coming as a result of OTC institutional investors looking for ways to customize options while still having the pricing transparency of exchange-traded instruments. The firm also recently introduced option contracts on their emerging market volatility exchange-traded fund and Brazil volatility index. Additional details on the timing and format of the products could not be immediately gleaned. The FLEX options platform will be called C-FLEX 2.0.
Brodsky added that the CBOE would be announcing new benchmark products at the Futures Industry Association’s Annual Meeting in Boca Raton, Fla., later this week.
