VIX Futures/Options

[heech]

Hi,

I'm still trying to understand how to work with VIX futures/options. Let's talk about specific example:

- VIXFF, Jun options with strike = 30, priced at $2.55.

- VXM9, Jun futures, priced at $30.40.

My understanding is that VIXFF will expire on June 17th, two days before expiration for the rest of the option universe. At expiration, VIXFF will be cash-settled based on calculation of IV SPY options expiring in *July*.

Is this, or is this not identical to the value of the *June* futures (VXM9)? Is VXM9 also settled on the same day, with the same calculation?

In other words, is VXM9 the actual underlying for VIXFF? I would have thought the answer was a clear yes, but CBOE gives sort of a mixed message on its website:

http://www.cboe.com/micro/vix/VIXoptionsFAQ.aspx#6
Some VIX options investors look at the prices of the VIX futures to gain a better general idea of how the market is estimating the forward value of VIX.

The language here says the futures gives a "general idea" of the settlement price... is it just a "general" idea, or is the future the *actual* underlying?

Could I do the equivalent of a buy-write strategy, by going long VXM9 while selling VXFFE?

 

[gkishot]

Quote from heech:

Hi,

I'm still trying to understand how to work with VIX futures/options. Let's talk about specific example:

- VIXFF, Jun options with strike = 30, priced at $2.55.

- VXM9, Jun futures, priced at $30.40.

My understanding is that VIXFF will expire on June 17th, two days before expiration for the rest of the option universe. At expiration, VIXFF will be cash-settled based on calculation of IV SPY options expiring in *July*.

Is this, or is this not identical to the value of the *June* futures (VXM9)? Is VXM9 also settled on the same day, with the same calculation?

In other words, is VXM9 the actual underlying for VIXFF? I would have thought the answer was a clear yes, but CBOE gives sort of a mixed message on its website:


The language here says the futures gives a "general idea" of the settlement price... is it just a "general" idea, or is the future the *actual* underlying?

Could I do the equivalent of a buy-write strategy, by going long VXM9 while selling VXFFE?

VXM9 is the actual underlying for VXFFE.

VXM9 = strike + VIX JUN call - VIX JUN put.

 

[heech]

Quote from gkishot:

VXM9 is the actual underlying for VXFFE.

VXM9 = strike + VIX JUN call - VIX JUN put.

Great, thanks for that. I was also confused because of an entry in blog, which seems like a very authoratative source on all things VIX related:

http://vixandmore.blogspot.com/2008/09/vix-options-as-catastrophe-insurance.html

"For anyone looking to trade September VIX options, the underlying to focus on is October VIX futures, which is why the September VIX 20 calls are currently quoted at 8.80 – 9.10."

I assume he misspoke... October VIX options underlying = October VIX futures.

 

[dagnyt]

Quote from heech:


http://vixandmore.blogspot.com/[/B]...and there's lots of good stuff there. Mark

 

[heech]

Follow-up question... I've just noticed the multiplier on the VX future is 1000... meaning a single futures contract is $30k.

But the option multiplier still seems to be "100"... selling one options ($3.50 each) = $350, for example.

I *believe* this means that 10 VIX options contract = 1 VX future, correct?

 

[dmo]

Quote from heech:

Follow-up question... I've just noticed the multiplier on the VX future is 1000... meaning a single futures contract is $30k.

But the option multiplier still seems to be "100"... selling one options ($3.50 each) = $350, for example.

I *believe* this means that 10 VIX options contract = 1 VX future, correct?

The original (and still more liquid) vix futures contracts have a multiplier of 1000. Those are the ones with the symbol VX, as in VXM9 for June futures.

A few months ago they introduced the vix mini futures contracts, which are 1/10 the size (multiplier of 100, just like the options). These have the symbol VM.

 

[flipflopper]

DO NOT TRADE VIX OPTIONS.

Every time I did and was right I STILL LOST MONEY.

Stay Away

 

[heech]

Quote from dmo:

The original (and still more liquid) vix futures contracts have a multiplier of 1000. Those are the ones with the symbol VX, as in VXM9 for June futures.

A few months ago they introduced the vix mini futures contracts, which are 1/10 the size (multiplier of 100, just like the options). These have the symbol VM.

Very, very helpful. You're right, VM is really far less liquid, and makes it difficult for my autotrader to function correctly...

But I guess I could always have it take bars/prices from VX, and just place orders on VM...? I'm sure the two are always arb'ed together anyways.

 

[heech]

I thought I'd share what I'm going to be doing with VIX... it's a variant of what I'm already doing with equities.

I think the IV premium in the VIX options are rich. Probably not too surprising, since there are probably a lot of institutional/retail buyers who are buying insurance with them, without being too concerned about the premium they're paying.

There are of course lots of ways to short rich options... but I figured I'd use my automated code, and try doing a modified delta-hedge on the VIX options with the VIX futures.

 

[clarodina]

Does futures vix converge to cash vix level on option expiration and the cash vix level is used to calculate whether the option is in or out of money? But the historical data of vix futures front month is always out of line on the settlement day at option expiration so which 1 is used for in or out of money option?

Anyone know any brokers that offer binary options?