VIX Options Underlying

Discussion in 'Options' started by brfish, May 7, 2011.

  1. brfish

    brfish

    Dumb question but I'm confused:

    The underlying price of say a July VIX Option is the JULY VIX future or is it the AUG VIX future? The CBOE site says the following:

    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.

    Thanks!
     
    #1     May 7, 2011
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  2. sle

    sle

    You do mean august 17th, dont you? Anyway, the options will pay based on a VIX special print on the same month, but that VIX value will be based on the interpolated expiry of SPX options in 30 days.
     
    #2     May 7, 2011
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  3. shortie

    shortie

    there are VIX options on VIX and there are options on VIX futures. I assume you are talking about VIX options.

    July VIX option will expire in July. it will be Wed that is in the same week as the regular July monthly option expiration date (Friday).

    the settlement price of VIX option equals VIX index print at open on that Wed (determined via a special methodology so it does not necessarily match VIX index open :) )
     
    #3     May 7, 2011
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  4. brfish

    brfish

    I see I need some further clarification:

    I am asking before expiration, not at expiration, if i own a July VIX (index not future) option, then the "underlying" i should be watching is the JULY VIX future or the AUGUST VIX future? Not at expiration but lets say today May 7th.

    Thanks again.
     
    #4     May 7, 2011
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  5. shortie

    shortie

    July Futs should be the reference point. They expire on the same July Wed.
     
    #5     May 7, 2011
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  6. FSU

    FSU

    The July VIX options are priced off the July VIX futures. There is a pure arb here as both will expire at the same price.

    The expiration print is based on the opening price of the SPX options on the morning of the VIX expiration. For example when the Vix May futures and options expire May 18th, the settlement price will be based on the opening price of June SPX options.

    There are some interesting opportunities here. The CBOE will publish order imbalances for these SPX options. The public can see these and can participate. There are unusually large orders on that morning as people unwind/manipulate their positions. For example you might see someone trying to sell 10,000 Spx out of the money puts at .05 which can be a great deal.

    Here is the link that shows what SPX series are used in the Vix settlement http://cfe.cboe.com/Products/vixsettleseries.aspx

    And here is the link that will show the SPX order imbalance Wed. morning http://cfe.cboe.com/data/EOSpage.aspx (last months is currently being shown)
     
    #6     May 7, 2011
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