VIX manipulation - should I wait for expiration on futures instead of rolling earlier?

S

Saltynuts

There was a recent thread that I believe dealt with a big S&P put order being placed on I believe the morning of VIX futures expiration a couple days ago in order to hopefully cause the VIX opening price to increase and thus get a bigger payout on the VIX futures.

Question - when this kind of thing happens, is it more often than not trying to influence VIX futures settlement to the upside, instead of downside? The reason I ask is because I've been rolling my VIX futures a few days before expiration on beerntrading's theory that if you wait and try and roll them last second you will pay a premium for the liquidity. But if VIX opening price on the settlement day is more often than not, if anything, being artificially influenced to the upside, maybe I should wait until the morning they expire, and just by the new month's right after open.

Thanks!
 
Definitely upside... because when the far OTM SPX puts are trading at 5 or 10 cents... if you sell them at 5 cents the effect is none/minimal. However, if you push them to 25 or 30 or even higher... that effect is decent if you aggregate all those OTM puts that are bid up... even if the overall weighting of those tiny puts in VIX calculation is small...

I assume it's only done when there's large interest in pushing it higher. So, maybe look at open interest in the options that expire and maybe total oi in the expiring future?

The problem is, you can't trade those VIX futures and options at the time they expire, since trading ends the day before... they only settle the next day on opening rotation.

Shouldn't really make a difference for you. You could let them expire, then if there's a spike, wait until it settles down again, and then buy the next VIX contract.
 
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Jack, thanks a ton, I really appreciate it. Related to your last point, I'm using these to hedge a good bit the rest of my much bigger portfolio. So I don't really want to be out of the futures for even a second, and I wouldn't mind doubling up for a few minutes/hours either. So based on another thread, I think if I don't want to be out of the long futures "coverage" for even a second, I would buy the next month futures at 3:59 eastern standard time (or a few minutes or hours before if I wanted to play it safe of course) on the day before the front month future expiration, correct? So I buy the next month at the end of the day before expiration, BOOM overnight happens, and if there is any VIX manipulation it will likely be to the upside, my front month futures payoff will happen first thing the next morning and they drop off, I'm secure in my next month's futures, rest and repeat in about 30 days. Does that sound about right to you?

Also, what you mentioned about trading on the VIX futures and options ending the day before, that's what I've always thought. But check this out, which I cut from another thread asking about this:

"By the way, I'm still not sure I understand the expiration. Here is the VIX expiration calendar:

http://www.cboe.com/framed/pdfframe...RESOURCES&title=2018+Cboe+Expiration+Calendar

Let's take the March contract. It says the expiration date is March 21st. So I believe that the opening price of the S&P options upon which the VIX is calculated would be snapped shot at the precise moment of open on the 21st. That would then determine the VIX settlement price for the March contract.

But when I go here:

https://markets.cboe.com/us/futures/market_statistics/historical_data/

And download the historic VIX March futures prices, and I go look at the 21st, when I would expect to see no trading data, just an open price, it looks like it actually traded over a wide range on that day?! What am I missing here gents?"

Thoughts on this? Its just bizarre!

Thanks Jack!
 
JackRab said:
Definitely upside... because when the far OTM SPX puts are trading at 5 or 10 cents... if you sell them at 5 cents the effect is none/minimal. However, if you push them to 25 or 30 or even higher... that effect is decent if you aggregate all those OTM puts that are bid up... even if the overall weighting of those tiny puts in VIX calculation is small...

I assume it's only done when there's large interest in pushing it higher. So, maybe look at open interest in the options that expire and maybe total oi in the expiring future?

The problem is, you can't trade those VIX futures and options at the time they expire, since trading ends the day before... they only settle the next day on opening rotation.

Shouldn't really make a difference for you. You could let them expire, then if there's a spike, wait until it settles down again, and then buy the next VIX contract.
More...


Actually I have seen different results. I believe a mark down happens more often then a mark up. For example the Feb vix expiration had a huge mark down. The out of the money puts that were trading at .40 the day before opened at .05, even as the market itself was down. You had many thousands of out of the money puts offered that morning.

Trading in the expiring VIX future continues until 8am ct on the morning of expiration.

Termination Of Trading:
Trading hours for expiring VX futures contracts end at 8:00 a.m. Chicago time on the final settlement date.
from http://cfe.cboe.com/cfe-products/vx-cboe-volatility-index-vix-futures/contract-specifications

Also if you are looking to roll your futures positions, you don't have to leg them. The time spreads trade as spreads, so you can do the entire roll as one trade.
 
Saltynuts said:
Jack, thanks a ton, I really appreciate it. Related to your last point, I'm using these to hedge a good bit the rest of my much bigger portfolio. So I don't really want to be out of the futures for even a second, and I wouldn't mind doubling up for a few minutes/hours either. So based on another thread, I think if I don't want to be out of the long futures "coverage" for even a second, I would buy the next month futures at 3:59 eastern standard time (or a few minutes or hours before if I wanted to play it safe of course) on the day before the front month future expiration, correct? So I buy the next month at the end of the day before expiration, BOOM overnight happens, and if there is any VIX manipulation it will likely be to the upside, my front month futures payoff will happen first thing the next morning and they drop off, I'm secure in my next month's futures, rest and repeat in about 30 days. Does that sound about right to you?

Also, what you mentioned about trading on the VIX futures and options ending the day before, that's what I've always thought. But check this out, which I cut from another thread asking about this:

"By the way, I'm still not sure I understand the expiration. Here is the VIX expiration calendar:

http://www.cboe.com/framed/pdfframe...RESOURCES&title=2018+Cboe+Expiration+Calendar

Let's take the March contract. It says the expiration date is March 21st. So I believe that the opening price of the S&P options upon which the VIX is calculated would be snapped shot at the precise moment of open on the 21st. That would then determine the VIX settlement price for the March contract.

But when I go here:

https://markets.cboe.com/us/futures/market_statistics/historical_data/

And download the historic VIX March futures prices, and I go look at the 21st, when I would expect to see no trading data, just an open price, it looks like it actually traded over a wide range on that day?! What am I missing here gents?"

Thoughts on this? Its just bizarre!

Thanks Jack!
More...

The settlement, for example, of the April monthly vix futures and options,(that just expired Wednesday morning) was based on the opening price of the May SPX options. The CBOE publishes a list of which options will be looked at. The weekly vix settlement is based on the opening price of the weekly SPX options, about a month out. Again the CBOE publishes which options they look at.
 
FSU said:
Actually I have seen different results. I believe a mark down happens more often then a mark up. For example the Feb vix expiration had a huge mark down. The out of the money puts that were trading at .40 the day before opened at .05, even as the market itself was down. You had many thousands of out of the money puts offered that morning.

Trading in the expiring VIX future continues until 8am ct on the morning of expiration.
More...
:thumbsup:
Yeah I was a bit surprised with that Feb one... but I guess that's when VIX was elevated levels due to the Feb crash...

Last few years we've had a low VIX in general, so it's possible that mark downs will happen more when VIX is higher.

For some reason I thought you couldn't trade the futures up until expiry.... weird. Time difference US vs Australia screws with my brain sometimes :D
 
FSU, thanks so much. I think it all makes sense now - on the VIX futures expiration date they stop trading at 8:00 Chicago (central) time on the expiration date (which I believe is pre-market trading), then you get the opening quote of the applicable SPX options at the opening of the regular trading hours at 8:30 Chicago (central) time.

I can see the huge opportunity for manipulation - buy (or sell) a bunch of VIX futures right before 8:00, at 8:29 put up some huge bids/asks on the applicable SPX options to influence the open quotes of the SPX options, then BOOM you've made a ton of money in ~30 minutes.

I think I'm also seeing Jack's point - you might own a TON of VIX futures or options, then put in bids or asks on a relatively small number of SPX calls or puts to drive up or down the VIX opening price, and even if you get tagged and have to buy/sell those SPX calls or puts at unfavorable prices, you still come out way, way ahead on the VIX products. Trump voice: NOT NICE!

Thanks a ton guys!
 
FSU, one more question, when you said this:

"Also if you are looking to roll your futures positions, you don't have to leg them. The time spreads trade as spreads, so you can do the entire roll as one trade."

I'm not quite following - would you mine giving me a little more explanation? Thanks!
 
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