Cboe wants to turn VIX into a never-ending trade
In this news:
Key takeaways
- Cboe is exploring perpetual VIX contracts to eliminate expiration dates.
- Crypto exchanges like Gate and Hyperliquid have already experimented with similar volatility products.
- Analysts note that perpetual contracts on non-physical indexes still involve funding costs and complex hedging challenges.
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.
The landscape of volatility perps
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.
Challenges in hedging cash assets
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!
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