Small Cap Splash: Russell's Pat Fay Talks About CBOE's Latest Volatility Contract

Nov 18, 2013

The CBOE Volatility Index futures, or VIX, has been THE most successful futures contract in recent years. With the VIX posting record volumes this year, the exchange and Russell Indexes say now is the time to launch the Russell 2000 Volatility Index futures or RVX. John Lothian News sat down with Russell Investment’s Pat Fay to talk about RVX and its potential, especially versus other indexes like VIX and the European volatility index VSTOXX.

Fay says the appetite for a small cap stock volatility futures is strong, especially among money managers looking to incorporate volatility hedges into their portfolios.

“Clients are asking for volatility products,” Fay says. “Folks have taken the opportunity to educate themselves on it, develop strategies, it’s become very popular.”

What traders and money managers may like about the new RVX futures, and later options, is that the Russell volatility index does not always track the VIX, or VSTOXX, which is traded on Eurex. This could open some spreading opportunities between the VIX, VSTOXX or both.

“The spread difference if we look at 2013 is interesting,” Fay says. “The RVX has gone from 10 percent difference over VIX to as high as 40 percent difference over VIX. For traders who want to trade correlation, relative value, this is significant.”

The RVX is based on the CBOE’s VIX methodology, and is applied to the options on the Russell 2000 Index options, which is the third-most actively traded index at CBOE in the first half of 2013. RVX, like VIX, will provide a market view of the expected 30-day volatility on the Russell 2000 Index. Jane Street Capital will be the designated primary market maker on the futures contract and Group One Trading will serve the same role on the RVX options when they are launched on December 2.

Fay believes the early adopters of the RVX will be those who’ve been trading VIX and VSTOXX futures and options, likely hedge funds, distressed equity funds and others in Europe looking for volatility strategies with the VSTOXX.

Russell 2000 Volatility Index futures (RVX) Resources

  • Russell 2000 Volatility Index (RVX) micro-site on (link)
  • Volatility Indexes on (link)
  • Press Release: CBOE Russell 2000 Volatility Index Futures And Options Launch Dates Announced (link)
  • CBOE Volatility Index (VIX) on MarketsWiki (link)

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