Speaking to InvestorDaily, ASX product development manager Brian Goodman said S&P/ASX VIX futures contracts which sit on the ASX Trade24 platform are primarily used by institutions.
The typical use of VIX futures would be to hedge an Australian equities portfolio, said Mr Goodman.
The VIX index tends to have an inverse relationship with equities – particularly on the downside, he said.
“Aligned with that, you may get groups like buy-write funds that have exposure to volatility as part of the buy-write process,” said Mr Goodman.
Along with investors who are looking to hedge their equity risk, there could be some fund managers who wish to take a view on volatility, he said.
In the last few months, Mr Goodman has noticed a number of market participants that are looking to derive income from selling volatility contracts.
“It’s certainly not a guaranteed way of earning extra income, but it is a strategy that can be employed to earn premium,” he said.
The launch of the ASX’s VIX futures market in October came off the back of education work conducted by the Chicago Board Options Exchange, said Mr Goodman.
“We were able to leverage off those levels of education, but often with a new contract there is quite a long take-up period – even the US VIX took two to four years before getting any significant traction,” he said.
That said, the ASX has seen activity in its VIX futures market, with market makers present and spreads tightening “somewhat” since October, said Mr Goodman.
“But we’re yet to see the really large institutional users come in. And that can be a reasonably long process,” he said.
“For the likely first movers we’ve gone beyond the education process and it’s just a case of maintaining contact and taking any feedback they have on board,” said Mr Goodman.
