CME Group (CME) & Nasdaq Partner to Launch Futures on VOLQ

CME Group Inc. CME partnered with Nasdaq NDAQ to unveil a new futures contract on the Nasdaq-100 Volatility Index. The new futures contracts, following the fulfillment of regulatory approval, will be introduced on Oct 5, 2020. The contract will be cash-settled based on the VOLQ Index.

The VOLQ Index underlying the futures contract has an at-the-money focus approach to volatility measurement. The index is calculated based on the values of 32 Nasdaq-100 Index options: the two nearest in-the-money and out-of-the-money puts and calls for the next four weekly expirations.  

VOLQ, introduced in early 2019 by Nasdaq, estimates the implied volatility of at-the money options with 30 days until expiration, which will aid market participants to better understand and manage portfolio volatility. Therefore, at any given time, the futures reflect an estimate of forward volatility, which is the expected volatility of the Nasdaq-100 Index for the 30-day period that starts on the futures expiration date. This approach reduces the value of the resulting measure due to statistical noise (issues like skew) from any of the three options inputs.

The Nasdaq-100 Index includes the largest domestic and international non-financial companies listed on the Nasdaq Stock Market reflecting the performance of companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. VOLQ is an improved measure of implied volatility on one of the most important domestic equity indexes, the Nasdaq-100 Index. The VOLQ index enables investors to track Nasdaq-100 volatility. The launch of VOLQ futures by CME Group will assist in bringing more innovative products around market volatility to investors.

With the launch of VOLQ futures, increasing demand for tools to hedge portfolio volatility exposure will be fulfilled immediately. Further, it will enhance and augment the highly liquid Nasdaq futures and options product line, which also includes the E-mini and Micro E-mini Nasdaq-100 contracts.

CME Group enables clients to trade futures, options, cash and over-the-counter (OTC) markets; optimize portfolios, and analyze data, which empowers market participants to efficiently manage risk and capture opportunities. It offers a variety of market data services for the futures, equities, OTC, cash and cleared swaps markets.

CME Group boasts the largest futures exchange globally in terms of trading volume as well as notional value traded. CME Group leads with about 90% market share of the global futures trading and clearing services.  In addition to the expansion of futures products in emerging markets, non-transaction related opportunities and over-the-counter offerings should continue to contribute to top-line growth.

Shares of this largest futures exchange in the world in terms of trading volume as well as notional value traded has declined 19.6% in the past year against the industry’s increase of 0.8%. Nonetheless, the company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.

The stock carries Zacks Rank #5 (Strong Sell).

Stocks That Warrant a Look

Some better-ranked stocks from the security and exchange sector include MarketAxess Holdings Inc. MKTX and Equitable Holdings, Inc. EQH, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarketAxess operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. It surpassed estimates in each of the last four quarters, with the average earnings surprise being 2.49%.

Equitable Holdings operates as a diversified financial services company worldwide. It surpassed estimates in three of the last four quarters, with the average earnings surprise being 13.79%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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