The newest thing going? On the CBOE, it's futures on the Russell 2000 volatility index, the RVX. RVX options will also be launched in December. If you have a viewpoint on what's going to happen to volatility on the Russell 2000 in the next few weeks, should you jump on board with a RVX futures trade or an options trade in December?

Maybe or maybe not.

I remember when VIX options were first launched. Many of us traders weren't so much interested in trading VIX options as we were using them to hedge our long equity positions. If equities rolled over, volatility was likely to rise. We could buy cheap VIX calls as a hedge.

Many of us found that they didn't work as well as expected. VIX options have non-standard expirations, and many traders or investors found themselves surprised by an expiration at a time they didn't expect. The biggest surprise, however, was that the underlying for VIX option was not the VIX itself but VIX futures. The calculation of settlement prices is a convoluted process, making it more difficult for options holders or sellers to predict which strikes will be in the money at expiration. What happens if markets turn down but market participants believe the downturn will be short-lived? Spot VIX values may shoot higher but those futures 30 days out may not be reacting by climbing. Therefore, the VIX options may not move as the buyers had expected them to move. They perhaps didn't provide any hedge at all as the options were subject to time-related decay.

Experienced options traders who have had these last several years to acquaint themselves with the vagaries of trading VIX options, in particular, remind each other that you'd better have a good-til-cancelled (GTC) order in place to take profit as soon as your VIX options trade is filled. Profits can disappear quickly on news or adverse price action. Seasonality can come into play with the VIX often trending lower in quiet summers and in December. Will RVX options behave the same way? Time will tell.

For those still interested in learning more about RVX futures, you can find the CBOE's products specifications page for RVX futures, ticker symbol VU, here. Be sure to check the information on settlement date and value, as well as margin requirements, minimal pricing intervals, and dollar value per tick. Settlement values are determined on the "Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the month in which the contract expires." Wrap your head around that one.

Then do more research. Look at volume. Compare it to volume on other similar products. Is the volume enough to provide liquidity, so that you can exit a trade as well as get into it? Do all this same research when the RVX options become available. Those of us who used to trade XAU options way back when could sometimes get into the options easily enough but had to practically go to the CBOE floor to look up a market marker to exit the things if there was an adverse move. Liquidity just wasn't there at the time. Talk to the trading desk at your preferred brokerage and ask about any problems they're seeing. The listing date for these futures was November 18, so they don't have a lot of history behind them yet, and the options are currently supposed to be available in December.

Linda Piazza