CBOE SPX And VIX Binary Options

With the introduction of the S&P 500 (SPX) and Volatility Index IMG1(VIX) binary options by the Chicago Board options exchange (CBOE), investors will now find trading in binary options even simpler and more exciting than ever before. They are now able to trade on their assumptions of how the S&P 500 index as well as the CBOE Volatility Index will move in the market. CBOE binary options are cash or nothing options. This means investors will receive a payout of $100 if their binary options expired in the money. For the options which expired out of the money, investors will not be able to receive anything.

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To increase accessibility to these financial instruments, these options can be traded through any trading account that has been approved for options trading. Just like traditional options, they can be traded using the CBOE hybrid system. To give the investors peace of mind, these instruments are cleared through the OCC which is rated AAA. CBOE binary options are ‘European’ style options in nature which mean they can only be settled upon the expiration date. Nevertheless, they are similar to traditional options in the sense that upon expiry, settlement is concluded on the same day.

Both SPX and VIX binary options share some similaritiesIMG3 together. They include the fact that both these option are European styled options and as mentioned earlier can only be settled upon expiry. Both these options are cash settled and payment is delivered the next business day. To qualify for payout, a call option settlement value must be at or above the strike price.
For put options, the settlement value must be below the strike price. Strikes price for in the money, out of the money and at the money will initially be listed for the investor to peruse. New prices strikes will also be continuously be updated in accordance to the market movements. Both these options are sold as three (3) months near term contracts and they are traded between 8:30am to 3:15pm (Chicago time). Investors are limited to the purchase of 1.5 million contracts that are on the same side of the market.

Although similar in several aspects, SPX and VIX differ in the following ways:

  • The underlying asset for the SPX is the S&P 500 Index while the underlying asset for the VIX is the CBOE Volatility Index.
  • SPX has a 5 point minimum strike price intervals while VIX only has a 1 point strike price intervals
  • The last day of trading for the SPX is the 3rd Thursday of the expiration month while for VIX, the last day of trading is normally the Tuesday of the expiration date.
  • Settlement value for SPX are normally calculated based on the opening price of the 3rd Friday of the expiration month while VIX settlement are normally based on the opening price of Wednesday that is 30 days before the following month 3rd Friday.
  • The expiration date for SPX is usually the Saturday after the 3rd Friday of the expiration month while for VIX, the expiration date is normally the Wednesday that is 30 days before the following month 3rd Friday.
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