Goldman Sachs has traded options on the volatility index futures run by the Chicago Board Options Exchange. The trades, which were executed in the last few months, are believed to be the first, although most other banks including Deutsche Bank, Barclays Capital and Dresdner Kleinwort Wasserstein, are looking at pricing similar deals.
Sandy Rattray, managing director in the equity derivatives strategy group at Goldman in London, said there is demand for this product from people who want squared VIX futures. "People naturally want to own calls on volatility," he added. Other players noted that because the payoff of the trade is the VIX squared, the instruments may only be traded by sophisticated players able to hedge this.
Goldman worked with the CBOE to relaunch the VIX index, which started selling futures in March. The CBOE itself has plans to launch an options product on VIX futures at the start of next year, subject to regulatory approval, according to Lynne Howard-Reed, spokeswoman at the CBOE.
