Cboe® Sees Continued Demand For Index Options As Traders Adapt To Uncertainty

Although the high level of market uncertainty that existed a few months ago has decreased, several external risks remain that could impact markets in the near term. While many investors are aware of these latent risks, they also recognize possible opportunities; a telling indicator of this is the degree of options usage so far this year. 

As reported by the Options Clearing Corporation, the total reported options contracts for May 2025 were 1,170,735,651 – 20.4% higher than what was reported in May 2024. Furthermore, the year-to-date average daily volume for 2025 was 57,742,200, which is 24% more than the year-to-date average volume for the same period in 2024.

For savvy investors, options are highly effective tools that enable them to manage risk and capitalize on market opportunities. Cboe Global Markets, Inc. CBOE, the world’s leading derivatives and securities exchange network, offers a diverse range of option-based solutions that investors and traders can utilize to achieve their desired market exposure and potentially mitigate risk.

Cboe's Index Options Offerings

Cboe provides a diverse array of investment options, including various index options that allow investors and traders to express their market outlook – whether optimistic or pessimistic. Practically, these derivative tools enable them to speculate on or protect against fluctuations in the overall market. If one expects the market to rise, traders and investors can utilize call index options to benefit from that increase. On the other hand, to safeguard against a market decline, put index options can assist in reducing potential losses within their portfolio.

The main advantage of index options is their extensive nature, enabling investors and traders to gain wide-ranging and diversified exposure to the market. Additionally, they are settled in cash, meaning that the purchaser of an option contract receives the cash difference between the strike price and the current market price of the underlying asset.

With indices, physical settlement is not possible; therefore, when the option is exercised, the buyer is compensated with a cash amount equivalent to the value of the underlying asset. Ultimately, the financial efficiency and inherent leverage of index options can enable investors and traders to manage substantial positions with comparatively low capital investments.

For those interested in trading S&P 500^® Index options, Cboe presents several options: Cboe S&P 500 Index Options (SPX^®), Cboe Mini S&P 500 Index Options (XSP^®) and Cboe Nanos S&P 500 Index Options (NANOS). While each index option offers a different contract size, the value remains the same.

SPX, the standard S&P 500 Index option contract, offers exposure to the broad market index, making it well-suited for both speculating on market fluctuations and hedging portfolio risks. Despite its size, this product has become more popular within retail trading audiences. 

XSP is valued at one-tenth of SPX, allowing it to be more affordable and accessible for individual investors while still retaining the same advantages associated with index options. 

Cboe NANOS have a compact size and straightforward nature, particularly as they are traded at one-hundredth the size of a XSP contract. This sizing allows investors and traders with smaller amounts of capital to potentially take advantage of market fluctuations with a lower financial commitment. 

Capitalizing On Volatility With Cboe

As mentioned earlier, although market volatility as measured by the Cboe Volatility Index (VIX^® Index) has returned to more typical levels, there is still time to potentially capitalize off market volatility. Volatility can be utilized as an asset class, allowing traders to capitalize on moments when it is either high or low.

For individuals looking to capitalize on volatility exposure, Cboe has multiple offerings that facilitate this need: VIX Options, VIX Futures, Mini VIX Futures and Options on VIX Futures. 

VIX Options are derivatives instruments that are settled in cash and follow a European exercise style, featuring monthly or weekly expiration dates. These investment options allow traders and investors to protect themselves against market volatility, speculate on potential future volatility or enhance the diversification of their portfolios.

VIX Futures reflect the market’s estimate of the value of the VIX Index on various future expiration dates, enabling traders to speculate on or hedge future market volatility. Because VIX Futures provide exposure to volatility independent of market direction, they facilitate both risk management and alpha-generation volatility strategies.

Mini-VIX Futures are one-tenth the size of the regular VIX futures contract. They are intended to offer more flexibility in managing volatility risk and provide appropriate exposure when allocating among smaller managed accounts.

Options on VIX Futures is a relatively new offering from Cboe that provides greater choice for expressing directional views and managing equity market volatility exposure. Options on VIX Futures are contracts that represent the right, but not the obligation, to either buy or sell a particular underlying futures contract at a specified price on or before a specified date (the expiration date). These also follow a European exercise style, are physically settled and have PM settlement; most options on futures expire at the closing of the market on the last trading day.

Cboe's Other Investment Offerings

Cboe's investment offerings go beyond those mentioned earlier, as Cboe's commitment to innovation and trader satisfaction fosters ongoing product development. For example, Flexible Exchange Options, or FLEX Options, are customizable solutions that allow investors to determine the parameters of the options contract, including exercise style (e.g., American or European), expiration date, strike price, contract size and occasionally the deliverable.

The high degree of customization allows investors and traders to design hedging and speculative strategies uniquely aligned with their investment goals.

Cboe’s standard Index FLEX Options are available on major stock indices(S&P 500, Russell 2000, MSCI EAFE, MSCI Emerging Markets and Dow Jones Industrial Average), individual equities,  ETFs and ETPs.

Alternatively, Cboe’s Index FLEX Micro Options product provides more flexibility and precision for managing exposure to larger-valued broad-based indices. With a contract multiplier of 1, rather than the conventional 100, insurers can more precisely hedge a portfolio based on notional value, which may equal a fraction of a standard contract.

The Growing Importance Of Options

The popularity of zero days to expiry (0DTE) options also reflects the increasing awareness of how options can be utilized. 0DTE options enable traders to engage in same-day expiring positions and hedges in the market. The results of the trade are determined on the same day, and it requires less capital compared to equivalent strikes with longer expiration dates.

Some of the most popular 0DTE strategies include selling call or put spreads, as well as iron condors (a call spread plus a put spread of equal strike distances). Other commonly used strategies involve buying outright calls and/or puts to tactically trade around market events and hedge longer-dated portfolios.

For income-focused investors and traders, several investment solutions, such as the Invesco S&P 500 BuyWrite ETF PBP, utilize Cboe's S&P 500 BuyWrite Index as the underlying strategy. A buy-write strategy is typically viewed as an investment approach where an investor purchases a stock or a group of stocks and simultaneously writes covered call options related to those stocks. This strategy generates option premium income, which can help mitigate losses in an equity portfolio; however, buy-write strategies often lag behind stocks during bullish market conditions.

For many investors and traders, options have become a crucial component in managing their portfolios. As noted in a paper published earlier this year by Cboe, titled Beyond 60/40: Using Options-Based Strategies in Portfolios, the growing positive correlation between equities and bonds in recent years has diminished the latter's ‘risk reduction' benefits in a portfolio. As such, investors and traders have turned to options-based solutions as a means of managing portfolio risk. The benefits of these solutions are a direct function of their underlying strategies, which do not rely on historical correlation patterns.

Taking Action With Cboe

Options are powerful tools that investors and traders can utilize to execute their investment strategies with greater efficacy. Cboe's product offerings have a wide variety of solutions to meet the evolving needs of market participants.

For investors or traders seeking to become more knowledgeable about these products, Cboe Global Markets Inc. offers The Options Institute. This educational platform provides both beginners to options trading and professional traders with a forum to familiarize themselves with foundational knowledge on options or learn new developments taking place within the investment derivatives landscape.

It is important to remember that responsible options trading is based on defining an investment objective and using analysis and informed decision-making to determine the most appropriate trading strategy. Understanding how options work and the associated risks, just like any other financial asset, is paramount. 

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