Estimating Historical VIX Option Prices

[ShameSalad]

I am looking to do some back-testing using VIX call option prices to test the feasibility of a strategy and to get a better idea of the risk metrics of the strategy. Has anyone had any luck with this type of thing?

I would be looking to get rough pricing of around 6 month out call options that are way OTM. Accuracy of the calls isn't crucial. But I would want to capture the price action given a drastic move of the VIX to the upside.

Strike price would be around 60, 80, or 100. I'm familiar with the Black-Scholes equations, though it has been sometime since I used them.

Any help would be greatly appreciated!

 

[guru]

Has anyone had any luck with this type of thing?

Yes, everyone who did any VIX options backtesting. There is no luck involved here since historical prices don't need to be estimated, only obtained.
But I'm not sure what you're asking? You want to calculate historical option prices without buying the price data and without knowing anything about actual prices?

 

[ZBZB]

Www.orats.com

 

[Tony Optionaro]

I am looking to do some back-testing using VIX call option prices to test the feasibility of a strategy and to get a better idea of the risk metrics of the strategy. Has anyone had any luck with this type of thing?

I would be looking to get rough pricing of around 6 month out call options that are way OTM. Accuracy of the calls isn't crucial. But I would want to capture the price action given a drastic move of the VIX to the upside.

Strike price would be around 60, 80, or 100. I'm familiar with the Black-Scholes equations, though it has been sometime since I used them.

Any help would be greatly appreciated!

Even though VIX options are options on the index, they're priced using the corresponding VX future on that expiry, so using the index as the underlying will most likely cause some errors in your models, so remember to use the futures rather than the index.

 

[ShameSalad]

Yes, everyone who did any VIX options backtesting. There is no luck involved here since historical prices don't need to be estimated, only obtained.
But I'm not sure what you're asking? You want to calculate historical option prices without buying the price data and without knowing anything about actual prices?

I was hoping I could use the VIX data along with maybe the VVIX data and the options equation to calculate an estimation of the historical option prices. This is my attempt at doing it for free because I'm being cheap! haha

 

[guru]

I was hoping I could use the VIX data along with maybe the VVIX data and the options equation to calculate an estimation of the historical option prices. This is my attempt at doing it for free because I'm being cheap! haha

It won’t work because VIX options are based on different VIX futures for each expiry, while each future dated price moves on its own. So sometimes a VIX future and same-strike options 3 months away may be priced lower than 1 month away, while other times it may be opposite. And even if you had the price of the VIX futures, I’m still not sure you could calculate option prices correctly without already being experienced enough to pick the right model, and having some data to verify it empirically.
So you may need to look into buying VIX option data. CBOE also sells it and maybe you could buy a smaller sample to play with.
Personally I trade options on VIX and everything else, but imho VIX options offer less alpha and less frequent opportunities than anything else, except for periods of high volatility and backwardation.

 

[ShameSalad]

It won’t work because VIX options are based on different VIX futures for each expiry, while each future dated price moves on its own. So sometimes a VIX future and same-strike options 3 months away may be priced lower than 1 month away, while other times it may be opposite. And even if you had the price of the VIX futures, I’m still not sure you could calculate option prices correctly without already being experienced enough to pick the right model, and having some data to verify it empirically.
So you may need to look into buying VIX option data. CBOE also sells it and maybe you could buy a smaller sample to play with.
Personally I trade options on VIX and everything else, but imho VIX options offer less alpha and less frequent opportunities than anything else, except for periods of high volatility and backwardation.

Thanks for your insight.

My purpose in using VIX options was to hedge my portfolio during volatile times. Currently I'm using UVXY options, but they are not very liquid. VIX options appear to offer the same type of protection. I currently own the June 2021 120 call contract.

 

[caroy]

Thanks for your insight.

My purpose in using VIX options was to hedge my portfolio during volatile times. Currently I'm using UVXY options, but they are not very liquid. VIX options appear to offer the same type of protection. I currently own the June 2021 120 call contract.

Have you considered using VXX?

 

[ShameSalad]

I had not considered VXX directly. But it looks like it would be good as well. But it appears to be just as illiquid as the UVXY options. Or am I missing something?

 

[guru]

I had not considered VXX directly. But it looks like it would be good as well. But it appears to be just as illiquid as the UVXY options. Or am I missing something?

VXX and UVXY liquidity should be sufficient, depending on expiry date and strike. Market makers will usually sell you those options near the mid-price, even if you don't see too much volume or bids.
VIX options can be more expensive as there is minimum price increment of $0.05, so you can't get a mid price like $1.07 but may need to pay $1.10, for example.
VIX options can have slightly better hedging power if used properly but are more difficult to trade.
Anyway, you may be able to test any of them for free at QuantConnect, if you figure it out.