Cboe to Launch Indefinite Futures for 'Fear Index' VIX, Expanding Territory Beyond Coins to Traditional Assets

[By Myungjeong Sun, Block Media]
As major U.S. exchanges seek to expand the indefinite futures market that has grown in the digital asset space into traditional financial markets, Cboe Global Markets is considering the launch of indefinite futures based on the volatility index (VIX), commonly referred to as the 'fear index.' If a regulatory framework is established, there is speculation that products allowing closer investment in VIX spot movements, which have been difficult to invest in directly, could emerge.

The VIX is an index that reflects the market's expected volatility over the next 30 days based on S&P 500 option prices. It tends to rise as stock market anxiety increases, hence its nickname as the 'fear index.'

However, the VIX itself cannot be directly bought or sold. Investors currently invest in volatility through VIX futures, options, or exchange-traded funds (ETFs) that hold related derivatives.

In this context, Rob Hocking, Global Head of Derivatives at Cboe, stated at the Bloomberg Intelligence Derivatives Market Structure Conference in New York, "We are examining the possibility of launching VIX-based products as soon as the regulatory framework for indefinite futures becomes clear in the U.S."

Limitations of VIX ETF 'Rollover Costs'... Indefinite Futures as an Alternative

Cboe already operates futures and options based on the VIX. There are also numerous ETFs listed that track VIX movements.

However, existing VIX ETFs cannot hold the index itself, so they operate by continuously rolling over VIX futures. This process requires selling near-expiration futures and buying futures with the next expiration, a practice known as 'rollover.'

Particularly, if a contango situation persists where long-term futures prices are higher than short-term futures, investors must repeatedly buy expensive futures, leading to accumulated costs. Consequently, the long-term returns of VIX ETFs can significantly diverge from actual VIX index movements.

A representative VIX-related product, the ProShares VIX Short-Term Futures ETF, has fallen about 34% this year.

Hocking believes that indefinite futures could complement the limitations of existing products. He stated, "Indefinite futures can be a very good means to solve these issues."

Indefinite futures are derivatives without expiration dates, unlike regular futures. They typically utilize regularly paid funding fees to ensure that futures prices do not deviate excessively from the underlying asset prices.

In the digital asset market, they have already established themselves as a representative derivative product. The ability to use high leverage and the lack of need to change positions at each expiration have led to a rapid increase in trading. Recently, U.S. financial firms have also begun to introduce related products.

Robinhood recently announced plans to offer up to 10x leverage on Bitcoin and Ethereum indefinite futures for U.S. customers, while applying up to 3x leverage on other digital assets.

"Different from Options in Profit Structure"... Regulatory Clarity is Key

Hocking, who previously worked as a stock volatility trader at Goldman Sachs, explained that indefinite futures can meet different investment demands than options.

He said, "While similar levels of leverage can be implemented in options, options differ from linear indefinite futures in that they have an asymmetric profit structure."

Option buyers see their profit structure change based on price movements in the expected direction of the underlying asset, while maximum losses are generally limited to the premium paid for the option. Indefinite futures, on the other hand, have a structure where profits and losses move relatively directly with fluctuations in the underlying asset price.

Cboe is expanding its influence in the global derivatives market. The average nominal trading volume of its flagship product, S&P 500 index options, reaches about $1 trillion per day. In particular, ultra-short-term options that expire on the same day have seen rapid growth in trading, primarily among retail investors.

Recently, Cboe also extended its exclusive licensing agreement with S&P Dow Jones Indices for S&P 500-related products for another 25 years. However, for VIX indefinite futures to be actually listed, a regulatory framework from U.S. financial authorities must first be established.

Hocking noted, "There is a huge opportunity to innovate using indefinite futures," but emphasized that "clarity in regulation is essential." He added, "To participate in the game, you first need to know what the rules of the game are."

The market speculates that if Cboe's plans materialize, indefinite futures that have grown in the digital asset market could spread to traditional financial assets such as stock indices and volatility. However, given that these products can utilize high leverage, how regulatory authorities set investor protection and risk management standards will be a key variable in determining whether they are listed.

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