Chapter 3

VIX Futures

After 2003, when the method used to determine the VIX index was updated, the next step was to introduce products that traded directly on the level of the VIX. On March 26, 2004, the CBOE Futures Exchange began trading futures contracts based on the VIX index. The CBOE Futures Exchange was established for the purpose of trading futures contracts based on the VIX as well as other volatility-related indexes. The VIX futures contracts were quickly recognized through winning the Most Innovative Index Derivative Award at the Super Bowl of Indexing Conference in December 2004.

This chapter will highlight the growth of VIX futures contracts as a trading and hedging vehicle. Then the specifications of these futures contracts will be discussed. Both the VIX and Mini-VIX futures will be discussed along with the settlement process behind VIX futures contracts. Finally, the relationship of VIX futures to the VIX index and the relationship of VIX futures contracts with different expiration dates will be covered.


Since 2004, the CBOE Futures Exchange has seen steady growth in trading on VIX futures contracts. This growth has been the result of acceptance of volatility as a trading vehicle and asset class by a wide variety of market participants.

Figure 3.1 depicts the average daily volume on a monthly basis for the VIX futures arena. In the months leading up to September 2010, the volume started increasing dramatically. In May 2010, a month ...

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