You can't just look at the two settlement values, you have to back the closing implied variance from the settlement value using realized variance to date and initial implied variance strike. It's simply a matter of inverting the formulas that I described for calculating the settlement values. So, the actual variance strikes are as follows: date.........variance 01/18/13 18.99 02/15/13 19.15 03/15/13 19.47 06/21/13 20.49 09/20/13 21.73 12/20/13 22.28 06/20/14 23.82 12/19/14 24.92 Looks pretty smooth to me - i will post the spreadsheet in a sec
Not sure what you mean - here are the implied closing variances for the past 3 days (19th, 20th and 21st): date 12/21/12 12/20/12 12/19/12 18-Jan-13 18.99 19.14 17.83 15-Feb-13 19.15 18.59 17.77 15-Mar-13 19.47 18.83 18.29 21-Jun-13 20.49 19.82 19.35 20-Sep-13 21.73 21.05 21.09 20-Dec-13 22.28 21.59 21.68 20-Jun-14 23.82 23.13 23.17 19-Dec-14 24.92 24.12 24.17
Here is a spreadsheet that calculates implied variance strikes from the futures settlement levels. To use it, get the settlement data from http://cfe.cboe.com/products/VACData.aspx, paste it over to the "inputs from CFE" worksheet and calculate. The "variance curve" will calculate the implied variance strikes for that settlement date. Very simple, I sort-of wish CME would provide a tool like that on their own
OK, I see. No question its smooth. My inclination is to find inconsistencies in the curve.. not too many there, lol
The implied variance for both Jun 13/Sep 13 moved up a similar amount, and I'm sure realized is the same across both... ... so why is it that CFE table shows Jun-13 futures changing +6.33 (settling at 827.44), while Sep-13 changed +20.99 (settling at 828.99) yesterday? It's probably not that important. I'm guessing their data is wrong, as in they're calculating "changed" from last traded rather than settled values... but just want to make sure I'm not missing anything. sle, still would love to hear you're explanation of what a sample trade in this thing would look like, and how it will probably look in my equity run!
Ok, now I see - this is because Jun13 was "listed" earlier then Sep13. CBOE decided to back-calculate realized volatilities from the listing dates for the options, so while Jun13 starts accruing realized variance from the summer of 2011, Sep13 only start accruing it from this past Sep. So, the impact of changes on the futures settlement values is different. I know, it's somewhat confusing, they could have done a better job designing the product. Well, a simple trade would be buying or selling variance futures. I can describe how the P&L going to look day over day, but not sure what you mean by "equity run"?
That explanation doesn't make sense to me... I'm probably missing something obvious here. But if we assume that CFE table is correct, it's saying: - as of Dec 20th, Jun 13 = 821.11, Sep 13= 807.95 - as of Dec 21st, Jun 13 = 827.44, Sep 13 = 828.94 The other factors you refer to....in terms of different listing dates, would have applied on Dec 20th as well. Why did Sep 13 move so much more on Dec 21st? My question was just trying to understand what the futures would look like on my account statement... For example: - If I went and used my trading front-end to "buy 25000 VAF3 @ 19.50" - CBOE calculator tells me this = 3543 variance units with futures price of 782.54. - does this mean my EOD account statement from the FCM would show, I am long 3543 VAF3 futures with a price of 782.54?
This makes sense to me. I just did this little thought experiment using the calculator... - say I placed the order above, buying 25000 vega notional. - and immediately afterwards (no change in date), let's say implied goes up 1 full point to 20.50. - CBOE calculator tells me futures price would now be 789.78. So, if I was long 3543 VAF3 futures, each of which has now gone up 789.78 - 782.54 = 7.24 points... that translates to paper gains of $25651.32. So, there you go. Buying 25000 vega notional, and having vega go up by 1, nets you $25000. (This is the kind of simple 'duh' transaction I really needed to understand this contract.)
Continuing with this thought experiment (which I'll probably test out with some orders tomorrow): - I fill an order to "buy 25000 VAF3 @ 19.5", which gives me long 3543 futures at 782.54 each. - Same day, implied goes up enough that I fill an order to "sell 25000 VAF3 @ 20.5". According to the calculator, this is equivalent to selling 3370 futures at 789.78 each. Net result: realized gains of $24399, but I'm still net long 173 futures. So... what's interesting is that this doesn't actually leave you with a flat position. Selling 25000 vega notional at 20.50 is not the same thing as buying 25000 vega notional at 19.50. If I want to fully flatten my full 3543 futures, I should have sold vega notional of 26,263 @ 20.50. I mean, you can see why retail guys are going to have a hard time with this... you can't flatten by selling the same "quantity" you bought earlier. You literally HAVE to pull out the calculator and figure out the correct numbers.