SPX Credit Spread Trader

If the options are priced to cash, anything can happen. I would expect the vols to overshoot due to the lack of fungible offset. Not to say they won't revert and trade at a discount, eventually. They would trade away from vol-swap rates to var-swaps. IOW, they would tend to trade linear to variance/vol.

If the options are priced to VBI, the pricing will trade to the local VBI contract due to the 3-way arbitrage.
 
And my assumption is that the current VBI future would also have a similar spike in value but less so since VBI futures have a slight premium to actual VIX prior to expiration much like ES has to SPX values?

My reading is that the VIX is not priced to VBI but to the SPX IVs at expiration of the VIX options for the next month. So that at MAY expiration the VIX options will be priced basically at what the SPX implies JUNE VIX will be at expiration? Like the forward rate...

Quote from CALCULON:

If the options are priced to cash, anything can happen. I would expect the vols to overshoot due to the lack of fungible offset. Not to say they won't revert and trade at a discount, eventually.

If the options are priced to VBI, the pricing will trade to the local VBI contract due to the 3-way arbitrage.
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Quote from optioncoach:

And my assumption is that the current VBI future would also have a similar spike in value but less so since VBI futures have a slight premium to actual VIX prior to expiration much like ES has to SPX values?
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Well, the premium to cash exhibited by VBI would pale to the moves seen in VBI. If I had to model it I would imagine we'd see a initial premium of 1000-1200 basis over cash at 40%, for example. The premium is likely due to the ease of trade inherent in buying vol without decay.

The initial premium would whipsaw to discount as the "convenience" premium and expectations were unwound.

Yes, I see now that my vols were incorrect and showing a substanital premium(discount) on the call(put). The numbskull that engineered these to price to cash should be fired for incompetence.
 
So if the VBI would actually overshoot the cash VIX on a spike, would the VIX options also experience a large swing?

Therefore, on the large spike, one could close out the calls (no doubt wide b/a would exist) and lock in the hedge profit.

Since this is new I realize this is tough to model and therefore just asking your impressions (and don't tell me you don't do impressions).

By the way my cat nailed 2 handles on the ES in the evening and is rubbing my face in it :(


Quote from CALCULON:

Well, the premium to cash exhibited by VBI would pale to the moves seen in VBI. If I had to model it I would imagine we'd see a initial premium of 1000-1200 basis over cash at 40%, for example. The premium is likely due to the ease of trade inherent in buying vol without decay.

The initial premium would whipsaw to discount as the "convenience" premium and expectations were unwound.
More...
 
Quote from optioncoach:

So if the VBI would actually overshoot the cash VIX on a spike, would the VIX options also experience a large swing?

Therefore, on the large spike, one could close out the calls (no doubt wide b/a would exist) and lock in the hedge profit.

Since this is new I realize this is tough to model and therefore just asking your impressions (and don't tell me you don't do impressions).

By the way my cat nailed 2 handles on the ES in the evening and is rubbing my face in it :(
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Yes, yes, in a vacuum it would work EXACTLY like that. By vacuum I mean one of those kick-ass Dyson models. No, wait, I mean like the vacuum in Space, yeah...

Your cat is a retard. Mine is reciting Hamlet in Latin while vacuuming. Hard to hear, though.
 
Quote from optioncoach:



By the way my cat nailed 2 handles on the ES in the evening and is rubbing my face in it :(
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Your cat has really caught on to using Wizetrade I see. When are we going to see your cat in an infomercial? :D

ryan
 
Quote from DonnaV:

spx option quotes seem to be frozen...what happens when spx goes nuts and we are unable to trade:confused:
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You always need backup. In disaster scenario you may always use phone (if it works :)

But seriously - I always use Fidelity or CNBC for backup.
 
OK it would work that way in a vacuum but in the real world it will be somewhat like that I hope with some craziness thrown in.

By the way, you know you have been married too long when your wife makes you buy a $500 vaccuum cleaner (DYSON). :D

As for my cat, she placed the trades while in the litter box reading War & Peace..... IN ORIGINAL Russian!


These are all my cat's trade confirmations from last December alone, 98% winners.
t71flu.jpg




Quote from CALCULON:

Yes, yes, in a vacuum it would work EXACTLY like that. By vacuum I mean one of those kick-ass Dyson models. No, wait, I mean like the vacuum in Space, yeah...

Your cat is a retard. Mine is reciting Hamlet in Latin while vacuuming. Hard to hear, though.
More...
 
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