Next up on our growing stable of ways to trade the CBOE Volatility Index (VIX), we have weekly VIX options. On Sept. 28, the CBOE Futures Exchange (CFE) will introduce its first options on a futures contract, VIX Weeklys (ticker: VOW).

Yes, Weeklys. If you like them in the  SPDR S&P 500 (NYSE: SPY) and PowerShares QQQ Trust (NASDAQ: QQQQ), you will love them in VIX!

There is, however, one major difference when it comes to VIX Weeklys. SPY, QQQQ and every other weekly option that trades now are exactly like “regular” monthly options except with different expiration dates. But VIX Weeklys are very different from the VIX options that currently trade.

Regular VIX options with a monthly expiration get cashed out when they expire. You get delivery of nothing; you simply get a cash debit or credit based on the VIX settlement price (VRO) and the options you are long or short. What’s more, they are European-style options, which mean you cannot exercise them.

With the new VIX Weeklys, you get delivery of a VIX future. In other words, let’s say you buy VIX weekly calls this week and they close in the money. You get delivery of VIX futures. Now, if you hold those VIX futures until expiration, you then cash settle based on the VIX settlement price at the future expiration.

My head spins thinking about these options. The longer a future has until expiry, the less it responds to each blip in the VIX itself. So even though weekly VIX options will always expire a week and a day from the onset of trading, they will behave very differently depending on where we sit in the expiration cycle. Let me explain.

Weekly VIX options will presumably list on Oct. 19 for delivery on Oct. 27 of November VIX futures. They will also presumably list again two weeks later, on Nov. 2, and will also result in delivery of November futures. November futures will bounce around much more on the latter batch of Weeklys, as they are much closer to cash out time. Translated back to the options themselves, the Oct. 19 VIX Weeklys should carry a significantly lower volatility than the Nov. 2 Weeklys (all other things being equal).

Of course, these two sets of Weeklys will not trade concurrently. The first batch will expire before the second batch starts trading. But it’s not a distinction without merit, rather something to keep in mind if you plan to trade VIX Weeklys.

Confused? You should be. Remember this all refers to the volatility of a VIX option, Yes, the volatility of volatility. Earlier cycle weekly VIX options will carry lower volatility than later cycle weekly VIX options.

So, if you plan to try you’re hand at these VIX Weeklys, make sure you’re ready for odd quirks like this and the many others that will surely crop up.

Follow Adam Warner on Twitter @agwarner.

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