Courtesy of Peter Chapman, Traders Magazine

CBOE Holdings, buoyed by the phenomenal success of options and futures contracts based on its Volatility Index, is ratcheting up its efforts to broaden their appeal.

“The volatility business is only eight years old, but we see terrific growth,” Ed Tilly, CBOE’s president and chief operating officer, told a gathering of reporters in New York recently. “We see hedge funds, prop trading firms, (commodity trading advisors), insurance companies and other institutional users migrating to the product. It’s very important for us.”

As part of its marketing, CBOE is emphasizing to money managers and traders the growth of liquidity in the instruments and the attractiveness of adding a volatility component to their portfolios.

The exchange operator also plans to provide European institutions with direct access to CBOE matching engines, 24 hours a day, 5 days a week.

The Volatility Index, or VIX, is a measure of the market’s expectation of stock market swings over the next 30 days, as determined by the performance of options on the Standard & Poor’s 500 Index. Trading in both contracts has soared in the past three years, with growth in the futures product especially dramatic.

Last year, average daily volume in VIX futures—traded at the CBOE Futures Exchange—reached 95,000 contracts, up from 5,000 in 2009. Average daily volume in VIX options—traded at the Chicago Board Options Exchange— reached 443,000 contracts, up from 132,000 in 2009. All this while overall options volume fell in 2012 and volatility itself was relatively muted. Continue reading →