CBOE Variance Futures

Discussion in 'Options' started by sle, Dec 18, 2012.

  1. sle


    Your P&L for the day would be the change between the two settlement values times the number of variance units times the point value (I think each unit is worth a dollar). A one day change in futures settlement value is driven by primarily change in the implied portion plus a tiny change in the realized portion.
    #51     Dec 21, 2012
  2. Jgills


    are you still planning to get this on today? just curious - im interested
    #52     Dec 21, 2012
  3. heech


    A couple more questions / topics that came to mind mid-sleep, and I wanted to put down before I forget:

    - what would be one-day change in VA futures value (assuming same implied vola) if realized came in at 0.5x or 2x one-day sigma? 3x sigma? 4x? Does anyone have a curve showing what this looks like? Is there optionality in this curve or is it linear?

    - what is the term structure of these quarterly contracts compared to VIX? Should the quoted variance be roughly identical to the same expiration VIX?

    - how do I calculate the "vega" exposure (for the lack of a better term) of one of these contracts? Obviously it's more affected by changes in implied the further out we are from expiration. If I wanted to hedge front-month ES option vega exposure for example, would I buy fewer VA when it's 3 months out, versus 2 months out, versus 1?

    These aren't really especially well thought out questions, and I may be able to decipher some of them just by staring at the equations a little more. But I just wanted to throw them out there before I forget what confuses me... hope people (sle?) can chime in and help the discussion.
    #53     Dec 22, 2012
  4. I'm still at the "I dont get it stage". I get variance swaps... but I don't get what the everyday price changes in the futures represent... in layman's terms.. I obviously need to look at the equations longer to
    #54     Dec 22, 2012
  5. gkishot


    As far as I can see S&P 500 3-Month Variance Futures were delisted for the lack of interest.
    #55     Dec 22, 2012
  6. #56     Dec 22, 2012
  7. gkishot


    I know they are different somehow, but don't they share the same principle? The only difference that I see that one has '3-Month' in it's name, and another one does not.
    #57     Dec 22, 2012
  8. I get this part... Vix futures your betting on a fwd vol number.. say if you bought jan vix futures.. your betting that it will settle above what you bought it at.. but because its nonlinear in fashion you can trade out at any point when you hit your profit target or upon your stop loss consideration.

    in a variance swap your exchanging the risk of a varying future for the existing fix implied number of the spx. soo.. if you are short your risk is that it realizes more then what was implied at issuance. Then at fixed dates you pay out or get paid the difference .. just like interest rate swaps..

    so say if the snapshot of implieds at issuance is 19: you sell the variance futures.... meaning your betting that that the snapshot is overpriced and you want to be short vol.. maybe cause your a short vol trader.. or maybe cause your to long premium on your book..
    is the 19 (snapshot) like a high seas mark.. and everyday is the daily vol number accumulates towards that high seas mark? such that if we realized alot less vol a quarter into the contract calender the price of the future will go way down.. i am able to understand things better conceptually first then mathematically second... equations sometimes just obfuscate whats really going on for me.
    i would like someone to correct me.. or give me some sort of analogy.. or tell me my analogy is right or wrong ..
    #58     Dec 22, 2012
  9. not that i've looked very far into it.. but they look similar in construction .. but contract months correspond with the spx index options listed on the cboe.. where as the 3 months don't state that they do.. and it would make alot more sense to hedge with futures that expire along with the options that they represent..
    #59     Dec 22, 2012
  10. gkishot


    Thank you.
    #60     Dec 22, 2012