His question: Your answer: "Yes" is not correct. The methodology is different than the vix cash calculation. If they were the same, they WOULD converge on expiration, like most cash numbers and futures do.
I wasn't saying yes to him in particular, I just started my sentence with that as a matter of speech. Bad grammar on my part. Thanks for pointing that out. As you can see from my answer, I clearly explained why there is no convergence and I have discussed that at length on this forum. None of the cash index products have convergence because of the settlement procedure.
No problem here. I'm not trying to be pedantic. I'm pointing out something that has led me down a path towards actual trading edge. I would like to know why other cash products don't converge though. My expertise is the vol surface and options market making, not index cash value inefficiencies. So...maybe I should move this question to another forum or PM you, but could you tell me why the SPX index cash and futures dont converge?
Because SPX has an opening settlement procedure that has nothing to do with the futures. It's based on the opening price of all stocks in the s&p 500. Same process for RUT and NDX as well. And since not all listed stocks open at the same time, the manufactured value is often a print that no way resembles where the actual SPX opens or where the futures are trading at. For example, if SPX closes tonight at 1300 and tomorrow is settlement. The settlement price could be 1324. SPX might actually open at 1305 and only trade as high as 1312 all day. Yet the settlement in which the options are priced are based on the 1324 SET. This is where there is no convergence on settlement. The worst of these indices is the RUT which is a total nightmare with 2000 small cap stocks opening.