VIX options

Quote from granville:

Options on the VIX are really options on options, a.k.a 'Compound Options'. This is really cool because up to now, compound options have only been traded over the counter (OTC) and not on any exchange that I know of.

My assumption is that the VIX options will be priced similiar to other compound options and will probably not reflect the futures price.
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No, they're not compound options.
 
Quote from riskarb:

No, they're not compound options.
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After further consideration, you are right. Since the options that make up the index change as the price of the S&P changes.

The idea is consistent however.
 
You'll need to be more specific. VIX options will be tightly correlated to the equivalent tenor in VBI futures. Carry is[nonexistent] overwhelmed by the vega attributes; VBI futures, and presumably these VIX options will mimic the term structure of the strip-vega and not the term-structure of implied strip-vols. The term-structure of vol cannot account for the large contango seen in the forwards.
 
Quote from IV_Trader:

what a confusing and depressing thread its became...I feel like sticking my finger in the eye and pulling my brains out
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In his subsequent post Riskarb has done his best to satisfy your plea for clarification, so let's not hear anymore whining.

Don

P.S. LMFAO
 
Quote from Don87109:

In his subsequent post Riskarb has done his best to satisfy your plea for clarification, so let's not hear anymore whining.

Don

P.S. LMFAO
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I was not referring to riskarb's posts
 
Riskarb,

if as we concluded, the underlying of the vix options correspond to the futures price (divided by ten) with the same expiration, Then it would be fair to say that the basis on the future (divided by ten) should be equal to: Call price minus the Put price. Otherwise, arbitrage would be possible.
One last thing you might be able to clarify, The pricing of the futures based on a vega strip and not an implied vol strip. Could you go in more details, one versus the other.

Thanks a lot

These products are great people, volume is still lacking, so spread the word.
 
This has been a good, professional thread. Thanks you all your insights.

I have 2 comments:

In order to be a viable trading vehicle, any instrument MUST have VOLUME, which also translates to tighter spreads.
As the VIX futures have seen very thin trading, I'm sure the VIX options will be the same...
This is a shame. With using the VIX index as underlying and using strikes every 0.5 points (11,11.5, 12), this could have been a nice play, even as potential hedge for index options.

Second, ktm made a comment about SPAN margin against REG T margin, which needs some clarification. It's true that SPAN margin is much more favorable to REG T. But it's not true that under REG T you have margin for both legs of a strangle.
You have the MAX between the CALLs margin and the PUTs margin plus the premium of the other side.
 
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