New VIX settlement procedures

[FSU]

Not sure how many people this will affect, but the CBOE has a new settlement procedure for the VIX.
The VIX settlement price is based on the opening price of certain SPX options. In the past retail customers could participate in this SPX opening process, which gave retail customers a nice edge.
Now in order to participate in the SPX opening (for the series that determine the VIX price) orders, cancels or modifications of these SPX options will not be accepted after 820am ct. If you want to place an order after 820 for the opening, it will have to be marked with the designation "SLOO" Note that most brokers are not aware of this.

So be aware that if you have regular order in before 820 ct. in the SPX for one of these series (tomorrow it would be the Nov monthly expiration) you wont be able to cancel it after 820 until after the opening.

 

[jtrader33]

In the past retail customers could participate in this SPX opening process, which gave retail customers a nice edge.

By means of joining the specialist as they print them at wide levels before everything tightens up?

 

[FSU]

By means of joining the specialist as they print them at wide levels before everything tightens up?

What would happen in the past, which would lead to crazy VIX prints, was that a firm or firms would enter huge buy or sell orders in the SPX options, especially the out of the moneys, to influence the VIX settlement. So an out of the money put option that should be .30-.35 would have a firm offering 7,000 options at .05. These sizes would overwhelm the MM"S as they were in many strikes. A retail customer could see these orders and put a bid in, which might provide enough liquidity to have the options open a bit higher and still give the retail trader an edge.

The CBOE is much tougher on these type of "manipulation" orders now, so there still might be an edge for a customer, but the options don't open as far away from fair value, as those huge one sided orders don't exist.

 

[jtrader33]

What would happen in the past, which would lead to crazy VIX prints, was that a firm or firms would enter huge buy or sell orders in the SPX options, especially the out of the moneys, to influence the VIX settlement. So an out of the money put option that should be .30-.35 would have a firm offering 7,000 options at .05. These sizes would overwhelm the MM"S as they were in many strikes. A retail customer could see these orders and put a bid in, which might provide enough liquidity to have the options open a bit higher and still give the retail trader an edge.

The CBOE is much tougher on these type of "manipulation" orders now, so there still might be an edge for a customer, but the options don't open as far away from fair value, as those huge one sided orders don't exist.

Ah gotcha. Thanks for the explanation.

 

[Sig]

What would happen in the past, which would lead to crazy VIX prints, was that a firm or firms would enter huge buy or sell orders in the SPX options, especially the out of the moneys, to influence the VIX settlement. So an out of the money put option that should be .30-.35 would have a firm offering 7,000 options at .05. These sizes would overwhelm the MM"S as they were in many strikes. A retail customer could see these orders and put a bid in, which might provide enough liquidity to have the options open a bit higher and still give the retail trader an edge.

The CBOE is much tougher on these type of "manipulation" orders now, so there still might be an edge for a customer, but the options don't open as far away from fair value, as those huge one sided orders don't exist.

Come on, CBOE "investigated" and determined that no such manipulation exists or ever existed (but they're cracking down on it nonetheless). You didn't see anything

Thanks for the heads up, great info as always!