Cboe wants to turn VIX into a never-ending trade

By CoinDesk

Perpetual futures, proposed by economist Robert Shiller in 1993 and commercialized by the crypto industry, are now being considered by Wall Street for products like the VIX, the stock market’s so-called fear gauge.

Cboe is exploring perpetual futures on the VIX, still early, with no contract specs or filing, according to Bloomberg.

The VIX Index measures the expected 30-day volatility of the S&P 500 based on options pricing. Because investors buy options to protect against rapid market drops, the demand for these contracts surges during downturns, spiking the index. Consequently, the VIX is widely known as Wall Street's "fear gauge."

VIX already has a thriving derivative industry tied to it with futures, options, and exchange-traded products that track the index. But with futures comes the expiry, the day when contracts cease to exist and traders, therefore, must roll or shift their bets to the next contract available. These rollovers are costly and weigh on returns, a criticism BTC futures ETFs faced when they debuted in late 2021.

In contrast, perpetual swaps never expire. Instead, they use a funding rate mechanism to anchor the contract price to the spot index, theoretically offering investors the closest possible proxy to trading the actual VIX spot price.

“Traders don’t have to worry about expiries and decay and just focus on the direction of where they think the underlying is heading. The VIX is one of many more indexes, assets and metrics that will be perpified. We expect to see a strong wave of perp-ification to occur in the coming months,” Martin Lee, market insights lead at DWF Labs, told CoinDesk.

Some crypto exchanges like Gate already offer VIX/USDT perps, but the market is highly illiquid with little noticeable volume. Recently Hyperliquid listed futures tied to bitcoin’s VIX – Volmex’s bitcoin implied volatility index.

A potential launch of VIX futures could bring more traders to volatility markets. More buyers and sellers and more hedging by market makers across VIX futures and other S&P 500 derivatives could pull the various VIX products into closer agreement.

However, costs still exist in the form of funding payments. Also the index is really just mathematical calculation and doesn’t exist like bitcoin, which creates a channelge for market makers, who cannot easily buy and sell the “spot” to hedge their risks, just as BTC market makers do.

“For us, the interesting question is how funding would anchor an index that cannot be bought as a cash asset. Removing expiry does not remove hedge costs or basis risk. Until contract terms exist, this is a potential new volatility market, not a cheaper substitute for options convexity," analysts at Marex Solutions said in an email.

For now, Cboe’s plan shows just how fast traditional and crypto market structures are converging to support advanced volatility products. Stay alert!

Read more: For analysis of today's activity in altcoins and derivatives, see Crypto Markets Today . For a comprehensive list of events this week, see CoinDesk's Crypto Week Ahead.

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