Sort of an options newb. So I understand there’s a volatility hump around the election, but why would anyone pay .20 more for the same strike option with a shorter expiry? You’ve got all the benefits of the Nov option but 3 additional weeks. What am i missing here? Thanks!
Why are VIX Dec 24 calls .20 cheaper than the Nov 17ths (even with election)?
- Thread starter Kid_Charlemagne
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I think your thread title and post contradict each other.
“Why would anyone pay .20 more for the same strike with a SHORTER expiry”
but the thread title “the DECEMBER calls are .20 cheaper than the November”
not sure what you’re trying to ask.but honestly man $VIX optionality is another beast all together. Especially in an election year. Volatility spikes and higher moment Greeks kick in and distort prices and make our monkey brains wonder why the model is pricing a Certain option that way.
just remember that vol is synthetic time
“Why would anyone pay .20 more for the same strike with a SHORTER expiry”
but the thread title “the DECEMBER calls are .20 cheaper than the November”
not sure what you’re trying to ask.but honestly man $VIX optionality is another beast all together. Especially in an election year. Volatility spikes and higher moment Greeks kick in and distort prices and make our monkey brains wonder why the model is pricing a Certain option that way.
just remember that vol is synthetic time
One reason could be the implied volatility drop (about 20% ATM) between Nov & Dec. November has the uncertainty of a scheduled event somewhat factored in. I liken it to an earnings event and everybody knows it's coming, but the actual results are unknown.
Just a guess, though and 0.20 isn't a huge discrepancy IMO.
Just a guess, though and 0.20 isn't a huge discrepancy IMO.
They might have the same underlying, but they are priced using the corresponding vix futures contract. Look at VX futures expiring in Nov vs ones expiring in Dec and there's your answer.
So to cut some corners, you won't get the benefits with the Dec options, these are not American equity options, but something more complex and your post shows that you shouldn't be trading these options.
As @Tony Optionaro pointed out you're actually seeing the futures price distortion not the options. VIX is unlike the majority of other products out there in that there's no underlying to the future that you can trade. As a result, futures prices aren't tied to an underlying like they are for forex, commodities or indexes. So you see what you noticed here, which is one of the few places where futures actually almost exclusively reflect the guess of futures traders rather than being tied via some linkages to the underlying and holding costs.
The answer is simple. The same strike calls are being priced from different underlying futures. VIX Dec futures are trading approx 1.50 lower than Nov futures, so the Nov calls are closer to ATM than the same strike Dec calls.
http://vixcentral.com/
They are same thing, just said in reverse. Thanks for your answer though.