VIX Manipulation Costs Investors Billions, Whistle-Blower Says

Discussion in 'Wall St. News' started by Banjo, Feb 12, 2018.

  1. Banjo


  2. I hope that person... never mind.
    lawrence-lugar likes this.
  3. JackRab


    As far as I know this only relates to the expiry of Vix derivatives... the future/options. What they do is quote OTM puts and calls higher, which moves the VIX spot index up/down quite a bit because a relatively small increase in OTM options with about 30 days to go changes the implied vol by a lot.

    However... these are all tradable quotes and anyone who does not agree with what is quoted can trade on them and possibly make money. And since it's only at/around expiry time of the vix derivatives... maybe those 'investors' should be out of their position anyways.

    And I seriously doubt it's 100's of millions of $'s a month.
    Handle123 likes this.
  4. Maverick74


    The OTM options have very little effect. I have the exact formula the CBOE uses on an excel spreadsheet and each strike is weighted based on how close to the money they are. The heaviest weights are the ATM strikes and it tapers off fast as you move further away. The deep strikes have weights like .0001, very small.
    iprome, Sprout, Niten Doraku and 3 others like this.
  5. .0001 but if they post a billion options that will move the vix 2 points.
  6. JackRab


    But can 'they' push those ATM options so much out of line to really get the VIX moving? I mean, I'm sure they can... but those ATM are very easy to trade if you don't agree with whatever IV it makes it out to be.
    OTM options would probably hold more size on the bid/ask so to keep hitting bids would be very costly on the risk side. ATM requires less IMO.
  7. Maverick74


    ATM options are very deep and very efficiently priced. Anyone who knocks them out of line will bring in the stat arb guys pretty fast.
    iprome likes this.
  8. JackRab


    Yeah exactly... so they can only manipulate the VIX by bidding in the OTM options.

    Say if a whole strip of puts are 0 bid @ 0.10... with hardly any vega in them... If you would bid 0.05 or even flip it to 0.10 @ 0.15... you increase the IV in those significantly... from 30 to 60 or 70 or whatever. And it's probably not worth it for others to hit those bids at those low levels since you're not getting anything for the blowout in risk.

    Even with the small allocation to the VIX spot for those OTM's the increase in IV will make it jump the VIX.

    To change the VIX with ATM options would mean increasing them a lot... dollars... from 40 for the ATM put to 43 etc. That's too much money down the drain. But nobody would mind a tiny put at 5 or 10 cents.
  9. Maverick74


    It won't move the vix much. Tomorrow I'll post the spreadsheet here. You can play around with it and shock the numbers. It doesn't do anything.
  10. JackRab


    I just had a look at settlement...

    On the 7th of Feb... the puts values <1 accounted for 7.5% of the VIX value. If you flip those that would certainly make a dent in the VIX.


    For that 600 put to reach 15 cents... you would need that strike IV to be at 165... that's a lot.... normally what... valued at 0...

    You can easily move it 0.5 - 1.5 points by bidding those puts up from 10 to 20 cents..... I tested it.

    Or am I making a mistake?
    Last edited: Feb 13, 2018
    #10     Feb 13, 2018