This Thread is for anyone who wants to shares ideas, results, models, strategies ( real or theoritical) on Vix options. I know this product is becoming more and more popular. Tks for your participation.
OK. If you look at the explanation of how VIX options are calculated, it says the following: The underlying for VIX options is the expected, or forward, value of VIX at expiration, rather than the current, or "spot" VIX value. This forward value is estimated using the price quotations of SPX options that will be used to calculate the exercise settlement value for VIX on the expiration date, and not the options used to calculate spot VIX. For example, VIX options expiring in May 2006 will be based on SPX options expiring 30 days later - i.e.; June 2006 SPX series. In fact, June SPX options do not even enter into the spot VIX calculation until April 17, 2006. Some VIX options investors look at the prices of the VIX futures to gain a better general idea of how the market is estimating the forward value of VIX. VIX option prices should reflect the forward value of VIX, which is typically not as volatile as spot VIX. For instance, if spot VIX experienced a big up move, call option prices might not increase as much as one would expect. Depending on the value of forward VIX, call prices might not rise at all, or could even fall! As time passes, the options used to calculate spot VIX gradually converge with the options used to estimate forward VIX. Finally, at VIX options expiration, the SPX options used to calculate VIX are the same as the SPX options used to calculate the exercise settlement value for VIX options. ...which, in a long way, says that even the VIX futures can only be used to estimate the underlying. So, the most important question, I think, is: is there any one place where the CBOE or CFE or someone publishes the underlying value? Or is everyone reduced to estimating this who doesn't have access to all of the quotes needed to instantly figure it out?
The future expiring on the same date as the option is a very close proxy of the forward. Best way to verify it is to take an option which is largely in the money (i.e. which has no more time value), for example a call 10, and you ll see that its value is equal to the future s value expiring on the same date minus 10 ( because the strike is 10).