I don't think it is a SPAN issue, as VIX options are not futures options, although they may be "priced" off of where the futures are trading vs the underlying options.
Alternative to a VIX futures covered call
- Thread starter dcwriter2
- Start date
for purposes of trading they don’t deliver into futures or trade on futures exchanges.
for the purpose of tax they are treated as 1256
My understanding (and others can correct me if I'm wrong here) is that futures are regulated by the CFTC. Options on futures exercise into futures. So if you have an ES future option, it would exercise into ES futures.
When VIX options are exercised/assigned at expiration, you do not get futures, you get cash based on where the VIX index settles and these are regulated by the SEC. When MM's price these options, they may use the where the futures are trading for pricing (just as the SPX options use the ES futures for pricing).
This means that brokers that don't offer futures trading may offer trading in VIX options, as they won't end up as futures.
SPX options are index options. MM's just use the futures to price the options as they will update faster then the underlying index.
I don't trade VIX or VIX options but I always like to go to the source.. sometimes
. Here's spec from CBOE:https://www.cboe.com/tradable_products/vix/vix_options/specifications/
Description
The Cboe Volatility Index - more commonly referred to as the "VIX Index" - is an up-to-the-minute market estimate of expected volatility that is calculated by using real-time S&P 500®Index (SPX) option bid/ask quotes. Only SPX options with Friday expirations are used to calculate the VIX Index. The VIX Index is calculated between 2:15 a.m. CT and 8:15 a.m. CT and between 8:30 a.m. CT and 3:15 p.m. CT. Only SPX options with more than 23 days and less than 37 days to the Friday SPX expiration are used to calculate the VIX Index. These SPX options are then weighted to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.
Weird, that the description mentions how VIX is priced and doesn't really talk about VIX options. They need to work on it I suppose.. unless I am reading it wrong.
-gariki
It's an index option, like SPX options
Schwab does allow this. I confirm it because I have recently traded VIX options with Schwab.
I believe Schwab (and Fidelity) have 3 levels of option trading. They may not have granted you the level you wanted (and think you need). They create their levels based on the profile you produced when you requested to trade options. All brokers do this to prevent liability, by not putting you in a level you have not mastered. Be sure to see what level you are at (they chose for you).
Yes, Schwab has four levels - the permissions are listed here: https://help.streetsmart.schwab.com/pro/4.36/Content/Option_Approval_Levels.htm
I have Level 2, and actually I get an error when trying to sell a cash-covered VIX put. I can enter vertical/diagonal spreads without problem. I'm not sure if this is a glitch or if VIX is treated differently.