CBOE Futures Exchange
January 14, 2014 Volume 8 Issue 1

FUTURES IN VOLATILITY

A CFE Newsletter focused on Volatility Futures

2013 was a fantastic year for the CBOE Futures Exchange. CFE hit all-time record highs in total monthly volume, monthly average daily volume and single day volume. Extended Trading Hours were introduced to coincide with London trading hours as well as a post close-session began from 3:30-4:15 CT. As CFE continues to expand and grow we hope you visit our web site and keep updated on new products and events we have to offer. This will be our CFE last newsletter. We appreciate your loyalty and readership over the past few years.

Thank you!

VIX Futures Last Trade Dates

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Contract Last Trade Date
January 2014 01/21/2014
February 2014 02/18/2014
March 2014 03/18/2014
April 2014 04/15/2014
May 2014 05/20/2014
June 2014 06/17/2014
July 2014 07/15/2014
August 2014 08/19/2014
September 2014 09/16/2014

Announcements

CBOE/CAIA Research Seminar on Volatility and Network Reception in San Francisco, CA Thursday, January 16th.
Register Here...

The CBOE Futures Exchange is exhibiting and sponsoring the MFA Network 2014 Conference in Miami, FL January 27-29th.
Read more...

The CBOE Futures Exchange is exhibiting for the first time at the Crude Oil Markets- Americas conference in Houston, TX February 27-28th.
Read more...

The CBOE Futures Exchange is sponsoring the Alpha Hedge East Conference in Palm Beach Gardens, FL March 3-4.
Read more...

CFE will be at the Futures Industry Conference in Boca Raton, FL March 11-14th.
Read more...

Register Now! CBOE's Risk Management Conference at the Hyatt Regency Coconut Point in Bonita Springs, FL March 17-March 19, 2014.



A CBOE Community Blog
Whats on Our Minds: Read the CBOE Blogs


Market Summary & Analysis

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Market Summary and Analysis is provided by Larry McMillan. Mr. McMillan is the President of McMillan Analysis Corporation.


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2013 Was A Low-Volatility Year, but 2014 Likely Won't Be

Due mostly to the broad market, as measured by the S&P 500® Index (SPXSM), being up for most of the year, 2013 was a relatively tame year for volatility. That does not mean that volatility was not tradable, but it was in a much narrower range than in prior years.

Figure 1 charts the movement of the CBOE Volatility Index® (VIX® Index) for the entire year. The high for the year was reached on the very first trading day, after Congress settled their late-year 2012 disagreements over funding. The low for the year was a value down toward 11 in May.

For the rest of the year, VIX ranged mostly between 12 and 15, with occasional higher forays. Several notations on the chart are significant. For background, when the VIX increases then drops sharply, forming a spike peak on the chart, that is generally regarded as a buy signal for the broad market, i.e., SPX. There were five major spikes that are marked with red capital "B"'s in Figure 1. All of those proved to be buying opportunities- (Figure 2). Even the more minor peaks (marked with small "b"'s) presented buying opportunities, although those minor peaks were harder to identify in real time, when they are actually taking place. Finally, the one blue "B" was a premature peak that was quickly followed by a higher peak. This may have lead to one taking a premature position and risking a loss before SPX turned around.

The point is, even in a low-volatility year, identifying spike peaks in volatility can lead to excellent buying opportunities.

Figure 1 Source: McMillan Analysis Corp


Figure 2 Source: McMillan Analysis Corp

Using spike peaks in volatility as buy signals for SPX was probably the best-working aspect of VIX this year. Those who attempted to trade futures found that volatility was even more suppressed. Figure 3 shows the futures prices of all the VX futures contracts that were listed for trading in 2013 (some are still trading). The graph in figure 3 has been expanded from high to low so that it is easily seen, however, most futures traded within a range of about 14 to 22 all year long. For most of the year, the futures contracts hovered below 20.

The green line (VIX) is beneath the futures prices nearly all of the times. Hence, the futures were trading with premiums to VIX. Furthermore, the term structure of the futures retained a positive slope at all times. This can be seen by the spreading of the colored lines (i.e., the futures) above VIX. The only time that the term structure flattened out was in late June, where the lines on the chart converge near the peak of the futures prices for the year.

In general, this construct of VX futures trading at a premium to VIX and the term structure sloping (steeply) upward is bullish for stocks. In a bearish stock market, the term structure would typically invert and slope downward. Because this construct remained positively-sloped all year long, even during corrections, may have been a meaningful indicator for stock traders. When corrections took place, this VX futures construct could have been interpreted as indicating that the correction was a minor setback for stocks and was not the beginning of a true bear market.

This construct has been generally positive since the fall of 2011. If the term structure inverts, then stock traders should become much more worried about a severe correction (bear market) setting in. So far, that has been an unnecessary worry.

Figure 3 Source: McMillan Analysis Corp

Figure 3 shows the outcome for buyers of VIX derivatives for protection. The chart shows that protection was not needed, as the futures never spiked upwards in any sort of severe stock correction. Remember, buyers of SPX puts, VIX calls or VX futures are seeking protection for their stock portfolio against the losses that might occur in a (severe) stock market correction.

VIX protection is currently relatively low cost, a good buy and may become necessary, as there is no guarantee that the stock market will continue to climb indefinitely. Looking Forward

CBOE and CFE have announced plans to list contracts on the CBOE Short –Term Volatility IndexSM (VXSTSM Index) in the coming year. The VXST Index is a nine day volatility estimate, as opposed to a 30-day estimate, of implied volatility. These products will likely offer additional hedging opportunities for investors. For example if you are trading 30-day VIX options or futures in the front months for protection (or speculation, too), the introduction of an even shorter-term measure of implied volatility may aid the ability to stay short-term.

Summary

I would expect VIX to trade in a wider range in 2014.This should provide better speculative opportunities, as well as produce better relative results for those who choose to use VIX to hedge their portfolios.

Furthermore, if the stock market becomes more volatile, there should be more movements (flattening and steepening) of the term structure that would make the use of futures calendar spreads T more viable strategies.


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December, December

"How did it get so late so soon?" - Theodor Seuss Geisel


It was a year of superlatives CBOE Volatility Index® (VIX® Index) products listed on Chicago Board Options Exchange, Incorporated (CBOE) and CBOE Futures Exchange, LLC (CFE®). For example at CFE, total VIX futures volume of 23.9 million contracts was up 68% over 2012 volume and was the fourth consecutive record volume year at the exchange.

For our final issue of "Futures in Focus," we thought it would be worthwhile to reprise a favorite technique: reviewing the life of the most recent VIX futures contract that expired (December 2013) and extending the review to every December VIX futures contracts listed on CFE since their introduction in 2004.


Sources: CFE, Differential Research, LLC


Looking at the trading history of the December VIX futures prices on a days to expiration basis, it would appear that VIX futures decline over time (as theoretically predicted), with several exceptions including one dramatic exception - 2008.


Sources: CFE, Differential Research, LLC


While many believe the holiday contributes to lower implied volatility options and VIX futures contracts, (due to a shorted final 30-days in December), the VIX futures' final settlement values were also contract lows. This seems to confirm volatility's decay over time. For a group, the titles for the greatest intraday, daily settlement and final settlement values are all held by the December 2008 VIX future contract, while the December 2006 VIX futures contract claims the lowest values.

Sources: CFE, Differential Research, LLC


The magnitude of the growth in VIX futures trading is particularly dramatic when comparing successive VIX futures contracts expiring in December. Interestingly, the term for VIX futures has varied over time with the December 2008 future's term approaching a full year, settling on the current approximate nine-month terms.


VIX December 2004

Today, VIX futures contracts are added to maintain a continuous sequential time series. That, however, was not always the case and a few expiration gaps exist. Four VIX futures contract expirations that were never listed are the:

  • December 2004 VIX futures contract
  • April 2005 VIX futures contract
  • July 2005 VIX futures contract
  • September 2005 VIX futures contract


VIX December 2005

The first VIX futures contract expiring in December was the December 2005 VIX futures contract, which began trading on October 24, 2005 and expired 78 calendar days later on December 21, 2005. While several VIX futures contracts have had shorter lifespans, the December 2005 contract is the shortest term December VIX futures contract in our analysis.

Sources: CFE, Differential Research, LLC


The December 2005 VIX futures contract holds the record for having the lowest volume and open interest. That VIX futures contract traded only 3,629 adjusted contracts over its life with a maximum daily volume of 357 contracts. Open interest peaked at 1,713 contracts.


VIX December 2006

The December 2005 and 2006 VIX future contracts are unique as they are the only two futures to expire prior to the change in the VIX futures' contract multiplier from $100 to $1,000.

The December 2006 VIX futures contract had a 10-fold increase in volumes year-over-year, with 34,653 contracts traded, a maximum volume day of 3,746 contracts and open interest that peaked at 13,065 contracts.

Sources: CFE, Differential Research, LLC


The final settlement value for the December 2006 VIX futures contract was $100.50, adjusted for the contract multiplier value of $10.05, would be the low value for the 64 trading days and remains the lowest close for a December VIX futures contract. That settlement value is the second lowest VIX special opening quotation (SOQ) or final settlement value for any futures contract.


VIX December 2007

Sources: CFE, Differential Research, LLC


The lowest final settlement value for VIX futures would take place two months later with the February 2007 VIX futures final settlement value of $9.95. The troubles brewing would slowly surface, however, with volatility generally rising for the balance of the year with the December VIX 2007 futures contract rising for much of its lifespan.


VIX December 2008

Sources: CFE, Differential Research, LLC


The exceptional year!

Volatility exploded in 2008, ahead of the financial crisis, with the December 2008 VIX futures contract rising from a daily settlement low of $21.30 on May 2, 2008 to a daily settlement high of $66.23 on September 20, 2008. That high however is only the fourth highest settlement in VIX futures history, surpassed by the daily settlement values of the November 2008 VIX future. The November 2008 contract, which expired on November 17, 2008 at 67.95, also was the all-time high final settlement value .


VIX December 2009

Sources: CFE, Differential Research, LLC


VIX December 2010

Sources: CFE, Differential Research, LLC


VIX December 2011

The December 2011 VIX futures contract is unique because it is the only expiring VIX futures contract to trade on the day it settled during morning extended trading hours from 7:00 a.m. to 8:30 a.m. (Chicago time), which was immediately before the final settlement for the contract was calculated.


Sources: CFE, Differential Research, LLC


The December 2011 VIX futures contract was also a "round-trip," with a low daily settlement value of $21.10 in July, a high of $36.70 in September and the second lowest settlement value, the final settlement, of $21.36 on December 21, 2011.


VIX December 2012

Sources: CFE, Differential Research, LLC


The Federal Reserve's policy of quantitative easing remained the focal point for volatility traders in 2012. Noticeably, the December VIX 2012 futures contract drifted higher into the June Federal Reserve meeting before declining for the balance of the year.


VIX December 2013

Sources: CFE, Differential Research, LLC


Finally, the most recent VIX futures contract to expire was the December 2013 VIX future.

In many respects, 2013 the general decline in volatility was an extension of a trend that began in September 2011. As the Dec. 2011 chart shows, beginning in September 2011 there was a pronounced downward trend in the volatility of the Dec ember 2011 VIX futures as this contract neared expiration. This pattern of decreasing volatility continued in both the Dec. 2012 and Dec. 2013 futures contracts, mimicking the downward volatility movement trends of the Dec. 2005 and Dec. 2006 VIX futures contracts. The December 2013 VIX future's daily settlement value peaked at $21.40 on June 26, 2013.

Finding comfort with the timeline for tapering clarified at the June Federal Reserve meeting, the December 2013 VIX futures contract drifted lower setting a contract settlement low of $13.60 on November 22, 2013. Reversing course, the future rose to expire at $15.84 on December 18, 2013, before the announcement (on the magnitude of initial tapering of quantitative easing) by the Federal Reserve that same afternoon.

Sources: CFE, Differential Research, LLC



The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.



Review of 2013 VIX Futures Trading Strategies

By Mark Shore, Founder of Shore Capital Management.


As a follow up to the 2013 series of trading strategy discussions on the CBOE Volatility Index® (VIX® Index) futures contract traded on CBOE Futures Exchange, LLC (CFE®), we wanted to review the previously discussed methods and apply them to the current market environment.

As liquidity is always an important factor for trading, trading in VIX futures continue to grow, with volume reaching record levels in 2013. On December 2, 2013, CFE reported volume in November at 2,522,828, down 8% from November 2012 and down 40% from October 2013. However, as of November 2013, volume for the year was 72% higher than 2012 at 36,748,760 versus 21,350,213 respectively. In November the average daily volume (adv) was 126,141 versus 130,202 in November 2012 and 182,257 in October 2013. When viewed on a yearly basis, as of November, 2013 outpaced 2012 regarding adv by 71% with adv of 159,086 versus 92,827 respectively.1

In 2013, we discussed the use of two trading strategies for the VIX futures contract. The methods included: 1) Utilizing the Commodity Channel Index; and 2) Applying the Mass Index. In this article the parameters were set to the same level as they were set in the previous articles.

Let's begin discussing the Commodity Channel Index (CCI). We initially discussed the CCI in "Utilizing the Commodity Channel Index on VIX Futures" in the March 2013 Futures in Volatility Newsletter.

The CCI indicator is considered overbought when the value exceeds +100 and is considered oversold when the value of the indicator is below -100. However the indicator may extend beyond +100 and -100 and the market could remain overbought/ oversold for an extended period of time. If a market continues to remain overbought/ oversold while the CCI is reversing (divergence) it may imply the market is nearing a turning point or correction.2

The VIX futures market tends to be a range bound market with a bottom in the 10 to 15 price range and tends to peak in the 40 to 45 range. For this article we assumed a 60 day cycle, thus using a 20 day (1/3 of the cycle) CCI parameter setting. The lower the parameter setting, the greater the probability of the CCI to reach overbought/oversold values.


Chart 1: Nearest Monthly VIX Futures Chart, 20 Month CCI as of December 20, 2013

Sources: www.barchart.com


When applying the CCI to the VIX futures monthly chart, as noted in Chart 1, we find several times when the CCI was overbought and oversold in conjunction with the extreme moves of the VIX futures. Keep in mind as a monthly chart, the market could remain at extreme levels for several months.

Since the end of 2012, VIX futures have primarily hovered near the bottom of the price range, occasionally moving towards 20 then reverting back to the bottom of the range. VIX futures tend to spend more time along the bottom end of the range. When it reaches the top parameters of the range it tends to occur in a more "spiked" fashion.

The CCI has simultaneously bounced around the oversold range since late 2012 and recently exceeded -100. Could the market be building a support base into 2014?


Chart 2: Nearest Weekly VIX Futures Chart, 20 Week CCI December 20, 2013

Sources: www.barchart.com


As noted in the weekly chart above, the greater the frequency, the greater the probability of the indicator reaching shorter term tops and bottoms. From January to May 2013, the CCI kept bouncing into oversold territory. However, in June the CCI reached overbought at the same time the VIX futures topped around 20. In November the CCI entered into the oversold range again. This chart also begs the question, will the market continue to bounce between a range of 10 to 20 in the shorter term, or could it building a base implying greater volatility in 2014?


Chart 3: Nearest Daily VIX Futures Chart, 20 Day CCI, December 20, 2013

Sources: www.barchart.com


As we drill deeper into the data, Chart 3 demonstrates that 2013 experienced several overbought and oversold moments. However, those moments tended to be short-lived, usually a few days to the longest overbought period being in May/June as the market remained overbought for about one month. However VIX futures tended to remain in the 12 to 20 price range.

Could VIX futures move lower in the short term as it remains in a tight range bound market and then gradually breakout to the upside in 2014?


Chart 4: Daily January 2014 VIX Futures Contract with 20 Day CCI, Ending December 20, 2013

Sources: www.barchart.com


Chart 4 above utilizes the CCI basis the January 2014 VIX futures contract. As the market rallied earlier in 2013, the CCI continued to maintain an overbought indication. As the market fell in the second half of 2013, the CCI continued to bounce into the oversold region. Each time the market was oversold, the market rallied off of the low.

In October the CCI became oversold and the market moved just slightly higher and then it turned much lower. If you combine Charts 3 and 4 together it makes an argument for the market to potentially move lower and sideways in the short term, however Charts 1 and 2 may be implying for greater negative volatility in the equity markets as the year progresses, thus VIX futures could move higher or at least make one or several quick rallies next year.

In the next strategy, we examine the Mass Index for the VIX futures market. We originally discussed this strategy in the article "Applying the Mass Index for VIX Futures Trading," for the June 2013 CFE Futures in Volatility Newsletter.

The Mass Index seeks to identify trend reversals for overbought and oversold markets. This is determined by either an increasing or decreasing of the market's high and low price range. The index will either increase as the range increases or decrease as the range decreases.

The index is determined by a 25-period moving sum of the ratio of two moving averages. The first moving average is a 9-period exponentially moving average of the high and the low differential. The second average is a 9-period exponential moving average of the first average. When the sum increases the gap widens and index moves higher. Donald Dorsey, the developer of the index, has stated if the indicator exceeds 27 and moves below 26.5 (reversal bulge) then buy if the 9-period exponential moving average of the market is trending down and sell if the 9-period exponential moving average is trending up. However, a reversal bulge may be an infrequent occurrence. 3


Chart 5: VIX Futures Weekly Nearest Futures with a 9 Day Exponential Moving Average and Mass Index, December 20, 2013

Sources: www.barchart.com


In the weekly chart above, 2011 was the last time VIX futures were considered overbought and the indicator implied a reversal. Since mid 2012 the market has moved sideways to lower. In 2013 the indicator moved sideways with an upward bias while the market remained at the low end of its trading range with an occasional spike to 20. Could the indicator be implying the market is moving higher basis the January 2014 futures contract?


Chart 6: VIX Futures Daily Nearest Futures with a 9-Day Exponential Moving Average and Mass Index, Ending December 20, 2013

Sources: www.barchart.com


In the nearest daily chart above there has been greater frequency of the indicator to reach reversals, as seen in January, March, end of April, July, August and October. As noted in the previous weekly chart, this chart is also giving hints that a reversal may be nearing in 2014.


Chart 7: Daily January 2014 VIX Futures with 9 Day Exponential Moving Average and Mass Index December 20, 2013

Sources: www.barchart.com


Short term reversals may occur more frequently in the daily chart above basis January 2014. Several reversals were noted in 2013 in June, August, September, October and November. Could this reversal be a rally in the VIX futures? If so, an upward bias in the VIX futures would imply a correction in the S&P 500® index.

In our last chart below the Mass Index and the CCI are combined to get a sense of viewing multiple indicators on VIX futures.


Chart 8 Daily January 2014 VIX Futures with 9 Day Exponential Moving Average, Mass Index and the Commodity Channel Index December 20, 2013

Sources: www.barchart.com


In summary, when both indicators are combined, a stronger argument can be made for the market nearing a reversal (in the Mass Index) while simultaneously being oversold (in the CCI). The beginning of 2014 could be an interesting moment for VIX futures and the S&P 500 index. Therefore when a VIX futures chart is combined with an overbought/ oversold indicator, it may offer some clues towards a change of direction and therefore imply the change of the underlying S&P 500 index.

This article may offer some ideas for the investor or Commodity Trading Advisor or hedge fund as a method to include VIX futures into their portfolio. This article is not intended to recommend a specific trading strategy, but to educate the reader on various strategy ideas to investigate beyond spreads or hedging of volatility futures.


If you have a favorite volatility futures trading strategy you would like to share, please email: info@shorecapmgmt.com



1 "CBOE Futures Exchange Reports November Trading Volume"; December 2, 2013 CFE Press Release

2 "Utilizing the Commodity Channel Index on VIX Futures"; March28, 2013 CFE Futures in Volatility newsletter

3 "Applying the Mass Index for VIX Futures Trading"; June 28, 2013 CFE newsletter


Copyright© 2013 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com

Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.


CONTACT

Please direct questions concerning this circular to:

Jay Caauwe
(312)786-8855
caauwe@cboe.com.

Jennifer Fortino
(312)786-8151
fortino@cboe.com.


About Larry McMillan and McMillan Analysis Corporation
Lawrence McMillan is the recipient of the Sullivan Award for 2011, awarded by the Options Industry Council in recognition of his contributions to the Options Industry. Professional trader Lawrence G. McMillan is perhaps best known as the author of Options As a Strategic Investment, the best-selling work on stock and index options strategies, which has sold over 200,000 copies. An active trader of his own account, he also manages option-oriented accounts for certain individuals and in addition, he is the Portfolio Manager of The Hardel Volatility Arbitrage Fund (a hedge fund). In a research capacity, he edits and contributes to his firm's publications: Daily Volume Alerts, The Option Strategist and The Daily Strategist—derivative products newsletters covering equity, index, and futures options. Finally, he speaks on option strategies at many seminars and colloquia in the United States, Canada, and Europe. He is quoted in publications such as The Wall Street Journal, Barron's, Technical Analysis of Stocks and Commodities, Data Broadcasting's Exchange magazine, Futures Magazine, theStreet.com, and Active Trader Magazine. In these capacities, he is the President of McMillan Analysis Corporation, which he founded in 1991. Prior to founding his own firm, Mr. McMillan was a proprietary trader at two major brokerage firms—primarily Thomson McKinnon Securities, where he ran the Equity Arbitrage Department for nine years.

About Michael McCarty
Michael McCarty is the founding member and chief strategist of Differential Research. An independent provider of derivative research for institutional investors. Differential Research was founded to capitalize on the growing importance of risk and volatility analysis in the investment process. Mr. McCarty is a frequent guest on BloombergTV, Fox Business News and CNBC, in addition to being quoted regularly by the financial press. Mr. McCarty also speaks frequently on the topics of risk and volatility at investment industry conferences.

Michael McCarty was formerly the Chief Strategist at Meridian Equity Partners, an independent broker dealer. As director of the firm's Option Market Operations, Mr. McCarty published two widely-read notes per day, targeting on the US marketplace and uncovering Noteworthy Option Activity.

Born in the Republic of Panama and raised in Central Florida, Mr. McCarty's fascination with the financial markets came early on, first studying finance and history at Emory University, then obtaining a Masters Degree in Finance from New York City's Baruch College – Zicklin School of Business. His vast knowledge and deep understanding of the equity and derivative markets, the result of a twenty-five year Wall Street career as sales-trader, analyst and market strategist has allowed him to accumulate a significant following of the most respected and accomplished investors worldwide.

About Mark Shore
Mark Shore has more than 20 years of investment, research and futures experience. In 2008 he founded Shore Capital Management LLC where he consults in alternative investments regarding due diligence, research, educational workshops and business development. He is a frequent speaker at alternative investment events. He has published several papers on alternative investments and asset allocation. His research is found at www.shorecapmgmt.com.

Mr. Shore is an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business where he teaches a graduate level managed futures/ global macro course. He is also an Adjunct Instructor at the New York Institute of Finance and a Contributing Writer for Reuters HedgeWorld and the CBOE Futures Exchange. Prior to founding Shore Capital, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM) in NYC from 2007 to 2008, where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee.

Prior to joining Octane, he was at VK Capital Inc from 1997 to 2006, a wholly owned Commodity Trading Advisor ($250 million AUM) of Morgan Stanley. As Chief Operating Officer of VK Capital, Mr. Shore provided research and risk management expertise on portfolio issues, product development and business strategy. Mr. Shore graduated from DePaul University with a degree in Finance. He received his MBA from the University of Chicago.



The information in this newsletter is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions that should be referred to for additional detail and are subject to changes that may not be reflected in this newsletter. The strategy discussions contained in this newsletter are designed to assist individuals in learning how volatility and variance futures as well as other volatility-based derivatives work and understanding various volatility derivatives strategies. The strategies discussed are for educational and illustrative purposes only and should be not be construed as a recommendation to buy or sell a security or futures contract or to provide investment advice. Additionally, commissions and other transaction costs have not been included in the example strategies and will impact the outcome of security and futures transactions and must be considered prior to entering into any transactions. Investors considering volatility-based derivatives should consult a professional tax advisor as to how taxes affect the outcome of contemplated transactions in volatility-based derivatives. The charts and/or graphs contained herein are intended for reference purposes only. Past performance is not indicative of future results.

The views of third party contributors to this newsletter are their own and do not necessarily represent the views of CFE or its affiliates. Third party contributors are not affiliated with CFE. This newsletter should not be construed as an endorsement or an indication by CFE of the value of any third party product or service described in this newsletter.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606.

The methodologies of the CBOE Volatility Index (VIX) and the CBOE DJIA Volatility Index (VXD) are owned by CBOE and may be covered by one or more patents or pending patent applications.

Copyright CBOE Futures Exchange, LLC. All rights reserved. CFE, CBOE, Chicago Board Options Exchange, CBOE Volatility Index, VIX are registered trademarks of Chicago Board Options Exchange, Incorporated.