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No, Not the VIX – the VSTOXX

Even your dog has heard of the VIX, the Chicago Board Options Exchange’s benchmark volatility index, but the VSTOXX, the benchmark for volatility in European stocks, is less of a household name in the U.S. Eurex has been trying to change that by adding more and more functionality to their VSTOXX products, starting out with spot prices and futures contracts on the index and then more recently moving into options on futures and ETNs.

Yesterday, Eurex and Rival teamed up for a meetup in Chicago at a popular Randolph Street restaurant to share the latest about VSTOXX and  Rival Systems’ offerings.  Mark Shore of Shore Capital Research was engaged to give an update on the VSTOXX based on his research into the subject.

VIX is the go-to measure for volatility in the U.S., but “VSTOXX is a better proxy than the VIX for European volatility,” Shore said. Rival Systems, a trading systems and technology provider that launched in 2015, last year added access to Eurex products on its Rival Trader platform.

Shore said VSTOXX derivatives are ideal for hedging, trading short term moves, doing spreads between futures on VSTOXX and VIX, and deploying strategies that use both futures and options.

The VSTOXX measures the 30-day implied volatility of the EURO STOXX 50. VSTOXX derivatives settle in euro. The index has a negative correlation with equities, and tends to move somewhat more than the VIX, Shore said.

Eurex had offered options on the spot VSTOXX (OVS) but that was limited to US market participants who are a Qualified Institutional Buyer. In February of this year the exchange started offering options on the futures (OVS2), which opens up participation to individuals as well. And just a few weeks ago it introduced exchange-traded notes, rounding out its suite of VSTOXX-related products and giving its customers more functionality to trade a whole range of derivatives on the index, including options on the VSTOXX-VIX spread.

Rival Systems does not yet offer an autospreader for this functionality, but its CEO, Rob D’Arco, says one is in development. D’Arco also said Rival has benefitted in the short term from the recent news of Vela Trading Technologies’ acquisition of OptionsCity Software, noting that uncertainty over their strategy has encouraged options traders to take a look at Rival’s offerings.

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Rudolph is the managing editor and head of editorial operations at John Lothian News (JLN).