Settlement of Option Exercise: The exercise-settlement value for VIX options (Ticker: VRO) shall be a Special Opening Quotation (SOQ) of VIX calculated from the sequence of opening prices of the options used to calculate the index on the settlement date. The opening price for any series in which there is no trade shall be the average of that option's bid price and ask price as determined at the opening of trading. Exercise will result in delivery of cash on the business day following expiration. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100.
I tryed VIX and VXB ... no options yet, but IB was late to display weeklies too. If CBOE link/data is correct , looks like the IV of first couple of trades is around 50. If nominal will be at 12 (and not at 120 as advertised) , nobody will trade it , stupid to pay 20c spread just to get in. Then it's just another worthless "product" , stupid bastards. Well , time will tell
As of 11:30, it looks like about 1800 contracts have traded, with most (1655) being the Apr 12.5P. I don't think having strikes at 2.50 intervals is going to cut it as there are entire cycles where the VIX may remain within the 2.50 range. I see the 10/12.5/15 quoted for both sides on the CBOE site. I don't see anything on the IB TWS as of yet. These also appear to be security products, so they shouldn't be subject to SPAN or 1256 treatment. Despite the drawbacks, having a product that will track the VIX more closely is a definte plus to have in the toolbag. Another 500 just went off at .55 for the Mar 12.5 Calls. This is more volume than the VIX futures had the entire first week.
Yes, this is true, but then again... the VIX futures are based on the index also. From the CBOE website: 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!
SPAN being portfolio margining. Simply put, under SPAN if you have OTM puts and calls you are charged for a single side. If SPAN is not used, you are charged for both sides even though your risk is generally only to a single side. Since these products are not under SPAN, the broker will just tack on extra margin for the position, rather than assess the impact of the position on your total portfolio - translation - more margin for potentially less risk. Section 1256 refers to the tax treatment of securities vs. commodities. If I trade SP/ES, I get 1256 treatment and gains are 60% long term/40% short term no matter how long I hold the contract. Security products are charged based on standard long term/short term cap gains parameters. On a side note, I have read that there will be significant legislation later in the year to add SPAN type portfolio margining for many more products.
This is what I feared. When we trade options on ES/SP, we are roughly trading against the forward value of the SPX, or more precisely the spot value of the ES futures contract. This produces a predictable reaction in hedges and offsetting positions. I think the problem with the VIX futures was that we couldn't get any real correlated movement when the spot VIX moved. There is some consolation in that forward should equal spot at expiration, I think.