VIX not going down any more

Maverick74 · Jan 13, 2012

Quote from sellindexvol66:

good questions. short answer is the futures will converge to spot; but it is tough to figure if they will converge to spot when you decide to trade them. in this case at 1.73 premium to spot in my opinion it is just noise and to earn on convergence you must be correct on market direction. please note, they will trade for 1 hour on the 18th..this is a new change.

Wait, what? They trade for an hour on settlement day now? I didn't know that.

sellindexvol66 · Jan 13, 2012

Maverick74 · Jan 13, 2012

Quote from sellindexvol66:

yes

That's an interesting development. There must have been a lot of people complaining about the bullshit settlements.

sellindexvol66 · Jan 13, 2012

Quote from Maverick74:

That's an interesting development. There must have been a lot of people complaining about the bullshit settlements.

i stand corrected...jan 11 they eliminated the extra hour..was done for dec settle.

hard to keep up , in any case you won't find me trading on expiration unless huge edge was there.

http://cfe.cboe.com/framed/PDFframe...5.pdf&section=SEC_ABOUT_CFE&title=CBOE - CBOE

Maverick74 · Jan 13, 2012

Quote from sellindexvol66:

i stand corrected...jan 11 they eliminated the extra hour..was done for dec settle.

hard to keep up , in any case you won't find me trading on expiration unless huge edge was there.

http://cfe.cboe.com/framed/PDFframe...5.pdf&section=SEC_ABOUT_CFE&title=CBOE - CBOE

Damn, that would have been a great idea. I can't think of a bigger crap shoot then that settlement procedure. It's a joke.

sf631 · Jan 13, 2012

Thanks for the replies, but it's still murky. If I understand the below right, the VX futures are settled on the same VIX index that I'm seeing printed, using the same methodology deriving index price from current SPX options, and they put special controls in place to ensure that no one manipulates the options market at settlement time to favor their expiring futures contract. Is that more or less right?

http://cfe.cboe.com/Products/settlement_VIX.aspx

Maverick74 · Jan 13, 2012

Quote from sf631:

Thanks for the replies, but it's still murky. If I understand the below right, the VX futures are settled on the same VIX index that I'm seeing printed, using the same methodology deriving index price from current SPX options, and they put special controls in place to ensure that no one manipulates the options market at settlement time to favor their expiring futures contract. Is that more or less right?

http://cfe.cboe.com/Products/settlement_VIX.aspx

Yes, but the problem is, it's a single print that never really trades. Like SPX, it uses a combination of strikes on the open when they happen to create a synthetic price. You won't actually see "that" price on the cash VIX because it's not static. So you could see the VIX settle up or down 2 or 3 handles from Tuesday's close and the cash VIX might hardly budge. It's a crap shoot.

newwurldmn · Jan 13, 2012

Quote from Maverick74:

Yes, but the problem is, it's a single print that never really trades. Like SPX, it uses a combination of strikes on the open when they happen to create a synthetic price. You won't actually see "that" price on the cash VIX because it's not static. So you could see the VIX settle up or down 2 or 3 handles from Tuesday's close and the cash VIX might hardly budge. It's a crap shoot.

My understanding that it's a little corrupt with large banks using markets on the spx downside puts to manipulate the fair value opening. Which for a guy not on the inside a random crapshoot. Like the ES settle but way worse.

zdreg · Jan 13, 2012

Quote from newwurldmn:

My understanding that it's a little corrupt with large banks using markets on the spx downside puts to manipulate the fair value opening. Which for a guy not on the inside a random crapshoot. Like the ES settle but way worse.

it should even itself out over time.

atticus · Jan 13, 2012

Quote from sf631:

Thanks for the replies, but it's still murky. If I understand the below right, the VX futures are settled on the same VIX index that I'm seeing printed, using the same methodology deriving index price from current SPX options, and they put special controls in place to ensure that no one manipulates the options market at settlement time to favor their expiring futures contract. Is that more or less right?

http://cfe.cboe.com/Products/settlement_VIX.aspx

Yeah, but futures will tend to trade in contango close to expiration especially in quiet, low-var periods. The risk-premium is embedded in what represents the var-swap.

I have seen many occasions where the street is long vol in the futures and boost the dime puts in tremendous size to kink the settlement calc. They're long the futures as a convenient vol-hedge, as it's obviously far more costly to replicate the strip in options. The contango reflects a convenience premium over the natural strip in options.

Conversely, the futures will often trade well under cash as the tails are "irrationally" bid with respect to ATM (upper deciles on hV). The true forward vol-curve is (IMO) better represented by the futures. Much in the same way that LNKD was NBBO at 90 with the synthetic showing 86 offer. 86 is truly representaive of demand in the shares that cannot be shorted in the natural market.

I guess I really haven't addressed your question very well, but I'll leave the post up anyway.