I have a short front month and long second month spread on and want to just let it expire. Can I do that? I suspect not. I'll be left holding a ong as a front month, right? So wat do I do? Close it myself the last day or trading? other caveats?
VIX futures expiring questions
- Thread starter SoCalOptionsWriter
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CannonTrading_Ilan
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I asked my colleague, Mark O'Brien who is active with spreads for his feedback:
It’s important to remember that a spread is technically a single position in the market made up of two or more individual positions and should be treated that way upon entry and exit. The fact that one of the legs of the spread is heading into either a First Notice Day or Last Trading Day, or even if the leg needing to be liquidated is cash-settled, doesn’t change the fact that you have a spread on your hands. If you’re inclined to remain in the market with a similar bias, enter a whole new spread (which may mean you get to reverse the other leg of the original spread, if the spread you want to end up with includes a leg in the market’s front month).
It’s important to remember that a spread is technically a single position in the market made up of two or more individual positions and should be treated that way upon entry and exit. The fact that one of the legs of the spread is heading into either a First Notice Day or Last Trading Day, or even if the leg needing to be liquidated is cash-settled, doesn’t change the fact that you have a spread on your hands. If you’re inclined to remain in the market with a similar bias, enter a whole new spread (which may mean you get to reverse the other leg of the original spread, if the spread you want to end up with includes a leg in the market’s front month).
Just as you suspect, you can't let the entire calendar spread expire because it consists of two futures that expire on different dates.
When the front expires, you will get a cash settlement at expiry on the front month (VX futures are cash settled) and the second month will become the front month. Assuming your position currently is short front, long second, and no other (VX) futures positions at other expiries, then your new position will be long front and no other (VX) futures positions at other expiries.
You *could* manually roll yourself before expiry if you want to keep this position:
+1 front
-2 second
+1 third
You could also let the front expire and adjust just before the expiry of the front:
-2 second
+1 third
The bid/ask spread on VX futures is $50 per contract and commissions are ~$1-2 (IB).
Notice that the settlement procedure for VX futures contracts is not simply the last traded price.
More details can be found here: https://www.cboe.com/tradable_products/vix/vix_futures/