Lastly, VIX futures contracts are priced based on the supply and demand of the contracts, which is different from the calculated value of the VIX. So, if the VIX changes in one direction, a future on the VIX might not change at all. In fact, it’s possible for the contracts to move in the opposite direction of the VIX Index.
Full Answer
What is the settlement amount of A VIX option?
The settlement amount of a particular VIX option is the difference between the Special Opening Quotation and the option’s strike price, times 100 dollars. The cash from VIX options settlement is delivered on the business day following expiration date.
What is a VIX futures contract?
CBOE VIX futures are settled at the open, always thirty days before a final settlement of S&P 500 options (SPX). Depending on how the market perceive volatility, the price of a VIX futures contract can be lower, equal or higher than the VIX spot price.
What happens if there is no trade on A VIX option?
If there is no trade on a particular S&P500 option, the average of bid and ask will be used. The settlement amount of a particular VIX option is the difference between the Special Opening Quotation and the option’s strike price, times 100 dollars. The cash from VIX options settlement is delivered on the business day following expiration date.
What are Volatility Index (VIX) futures?
Volatility Index (VIX®) Futures. Introduced in 2004 on Cboe Futures Exchange ℠ (CFE ® ), VIX futures provide market participants with the ability to trade a liquid volatility product based on the VIX Index methodology. VIX futures reflect the market's estimate of the value of the VIX Index on various expiration dates in the future.
How do VIX futures settle?
The VIX Settlement Process VIX Futures are AM settled contracts. The final settlement value for VIX Futures is a Special Opening Quotation (SOQ) of the VIX Index. The SOQ is calculated using opening prices of constituent SPX or SPX Weeklys options that expire 30 days after the relevant VIX expiration date.
How is VIX settlement calculated?
The settlement amount of a particular VIX option is the difference between the Special Opening Quotation and the option's strike price, times 100 dollars.
What is VIX settlement?
The VIX Index settlement process is patterned after the process used to settle A.M.-settled S&P 500 Index options. The final settlement value for Volatility Derivatives is determined on the morning of their expiration date (usually a Wednesday) through a Special Opening Quotation ("SOQ") of the VIX Index.
Do VIX futures track the VIX?
Investors are fascinated by the VIX Index due to its tendency to spike during market turmoil. VIX ETFs exist but they track VIX index futures, instead of the index directly. Find out why this can be an issue.
Are VIX futures cash settled?
CBOE VIX futures are cash-settled and so, unlike futures on commodities, there's no physical delivery. On settlement date, your account will simply be credited or debited the difference between your purchase (or sale) price and the settlement price.
How does VIX Short Term futures work?
The S&P 500 VIX Short-Term Futures Index measures the returns of a portfolio of monthly VIX futures contracts that rolls positions from first-month contracts into second-month contracts on a daily basis. The index maintains a weighted average of one month to expiration.
What time does VIX settle?
5:00 p.m. (previous day) to 8:30 a.m. 8:30 a.m. to 3:00 p.m....Cboe Volatility Index® (VX) Futures.VX Futures SymbolVX TAS SymbolFinal Settlement DateVXVXTApril 20, 2016VX17VXT17April 27, 2016VX18VXT18May 4, 20165 more rows
What is futures VIX?
VIX futures are futures on CBOE Volatility Index, better known as the VIX and sometimes nicknamed "the Fear Index", as it tends to spike when stocks fall and investors are fearful. CBOE Volatility Index measures implied volatility of near term options on S&P500 stock index.
What is VIX futures curve?
The VIX futures curve links daily settlement prices of individual VIX futures contracts to maturities across time. Typically, the VIX futures curve is upward sloping or in contango because investors expect volatility to rise in the future.
What is the difference between VIX and VIX?
VIX of VIX (or VVIX) is a measure of the volatility of the Cboe Global Markets (Cboe) Volatility Index (VIX). The Cboe's VIX measures the short-term volatility of the S&P 500 indexes, and the VVIX measures the volatility of the price of the VIX.
Are VIX options based on futures?
The VIX Index is based on real-time prices of options on the S&P 500® Index (SPX) and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility. The VIX Index is often referred to as the market's "fear gauge".
What is difference between VIX and VXX?
2) VXX Is VIX It has already been established that VXX is an exchange-traded note with returns based on the S&P 500 VIX Short-Term Futures Index Total Return. VIX is the commonly known name and ticker for the CBOE Volatility Index.
How settlement price is calculated?
Daily Settlement Price The closing price for Commodities futures contract shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time.
How is volatility calculated?
Volatility is a statistical measure of the dispersion of data around its mean over a certain period of time. It's calculated as the standard deviation multiplied by the square root of the number of periods of time, T.
How is the settlement price different from a closing price?
Closing price of any scrip on any day is the weighted average price of last 30 minutes of trading for that day. But daily settlement is only for future contracts and daily settlement price is based on closing price of futures contract.
What time does VIX options settle?
The VIX Index is calculated between 2:15 a.m. CT and 8:15 a.m. CT and between 8:30 a.m. CT and 3:15 p.m. CT. Only SPX options with more than 23 days and less than 37 days to the Friday SPX expiration are used to calculate the VIX Index.
Why use VIX futures?
VIX futures can be used as an effective tool to diversify portfolios, hedge equity returns and to spread implied vs realized market volatility. VIX futures also enable market speculators to trade volatility independent of the direction or the level of stock prices.
How is VIX fair value calculated?
The VIX futures fair value is, instead, calculated by pricing the forward 30-day variance which underlies the VIX Futures settlement price. The computation of fair value is fairly complicated. For those of you who wish to delve deeper into the mathematics, more information can be found on the CBOE Futures Exchange website at http://cfe.cboe.com/education/vixprimer/Features.aspx
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What is VIX settlement?
VIX options are cash settled (because there is no way of delivering the underlying, which is just an index). The settlement value is the so called Special Opening Quotation (SOQ) of VIX. It is derived from opening prices or quotes of S&P500 options that are used for VIX calculation at the open on VIX options expiration date. If there is no trade on a particular S&P500 option, the average of bid and ask will be used.
When is vix cash delivered?
The cash from VIX options settlement is delivered on the business day following expiration date.
How is the VIX settlement process determined?
The final settlement value for Volatility Derivatives is determined on the morning of their expiration date (usually a Wednesday) through a Special Opening Quotation ("SOQ") of the VIX Index. By providing market participants with a mechanism to buy and sell SPX options at the prices that are used to calculate the final settlement value for Volatility Derivatives, the VIX Index settlement process is "tradable."
What is VIX settlement?
The VIX Index settlement process is patterned after the process used to settle A.M.-settled S&P 500 Index options. The final settlement value for Volatility Derivatives is determined on the morning of their expiration date (usually a Wednesday) through a Special Opening Quotation ("SOQ") of the VIX Index. By providing market participants with a mechanism to buy and sell SPX options at the prices that are used to calculate the final settlement value for Volatility Derivatives, the VIX Index settlement process is "tradable."
How many weekly expirations are there for VIX?
CFE may list up to six consecutive weekly expirations for VIX futures. VIX Weekly futures generally have the same contract specifications as monthly expiring VIX contracts. See Contract Specifications for VIX Futures for more information.
When do VIX futures expire?
Weekly expirations for VIX futures are generally listed on Thursdays (excluding holidays) and expire on Wednesdays. CFE may list up to six consecutive weekly expirations for VIX futures. VIX Weekly futures generally have the same contract specifications as monthly expiring VIX contracts. See Contract Specifications for VIX Futures for more information.
When did VIX begin trading?
VIX Weeklys futures began trading on CFE in 2015 and provide market participants with additional opportunities to establish short-term VIX positions and to fine-tune the timing of their hedging and trading activities.
When did VIX come out?
Introduced in 2004 on Cboe Futures Exchange ℠ (CFE ® ), VIX futures provide market participants with the ability to trade a liquid volatility product based on the VIX Index methodology. VIX futures reflect the market's estimate of the value of the VIX Index on various expiration dates in the future. VIX futures provide market participants with a variety of opportunities to implement their view using volatility trading strategies, including risk management, alpha generation and portfolio diversification.
What time does VX futures trade?
The trading hours for all types of TAS transactions in VX futures are (i) during extended trading hours, except during the extended trading hours period from 3:30 p.m. Chicago time to 4:00 p.m. Chicago time on a normal Business Day; and (ii) during regular trading hours until the Daily Settlement Time for VX futures.
What are TAS trading hours?
The trading hours for all types of TAS transactions in VX futures are (i) during extended trading hours, except during the extended trading hours period from 3:30 p.m. Chicago time to 4:00 p.m. Chicago time on a normal Business Day; and (ii) during regular trading hours until two minutes prior to the Daily Settlement Time for VX futures. Accordingly, on a normal Business Day, the trading hours for all types of TAS transactions in VX futures end at 3:00 p.m. Chicago time. TAS transactions in an expiring VX futures contract are not permitted during the Business Day of its final settlement date.
How long does a VX futures contract last?
The Exchange may list for trading up to six near-term expiration weeks, nine near-term serial months and five months on the February quarterly cycle for the VX futures contract. VX futures that have a "VX" ticker are not counted as part of the six near-term expiration weeks.
What is the minimum price range for a TAS spread?
The permissible price range for all types of TAS transactions in VX futures is from 0.50 index points below the daily settlement price to 0.50 index points above the daily settlement price. The permissible minimum increment for a TAS single leg transaction and a TAS spread transaction in VX futures that is not a Block Trade or an Exchange of Contract for Related Position transaction is 0.01 index points. The permissible minimum increment for a TAS Block Trade (including as a spread transaction but not as a strip) and a TAS Exchange of Contract for Related Position transaction in VX futures is 0.005 index points. Any TAS transaction must satisfy the requirements of CFE Rule 404A.
What time does a TAS contract end?
Accordingly, on a normal Business Day, the trading hours for all types of TAS transactions in VX futures end at 3:00 p.m. Chicago time. TAS transactions in an expiring VX futures contract are not permitted during the Business Day of its final settlement date.
What is CFE 1202?
CFE Rule 1202 (h) - Crossing Two or More Original Orders. The eligible size for an original Order that may be entered for a cross trade with one or more other original Orders pursuant to Rule 407 is one Contract. The Trading Privilege Holder or Authorized Trader, as applicable, must expose to the market for at least five seconds under Rule 407 (a) at least one of the original Orders that it intends to cross.
What is the VX symbol?
VX Futures Symbols - VX* and VX01 through VX53**. Embedded numbers denote the specific week of a calendar year during which a contract is settled. For symbology purposes, the first week of a calendar year is the first week of that year with a Wednesday on which a weekly VX futures contract could expire.
What is the VIX index?
The CBOE Volatility Index® (VIX® Index®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility.
What does VIX mean in stock market?
The VIX represents the S&P 500 index +/- percentage move, annualized for one standard deviation. Example, if the VIX is currently at 15. That means, based on the option premiums in the S&P 500 index, the S&P is expected to stay with in a +/- 15% range over 1 year, 68% of the time (which represents one standard deviation).
What is the settlement value of VIX options?
The settlement value is called the Special Opening Quotation (SOQ). This value is based off the opening prices of SPX options. This means that you may think your short VIX options will be out of the money at expiration, but you can find yourself with a not-so-fun surprise if the SOQ runs against you because somebody decided to buy a ton of SPX options. We recommend never to hold VIX options into settlement to avoid nasty surprises.
Why do options have inverse correlation?
In general option premiums have inverse correlation to the market. In a rising market, stocks tend to be less volatile and option premiums low which causes lower VIX values. Declining markets are volatile (the old saying is that the market takes the stairs up and the elevator down) and option premiums increase. Much of this increase occurs when worried investors pay a large premium on puts to protect their positions.
How many ETPs are there?
There are around 25 volatility Exchange Traded Products (ETPs) that allow you to go long, short, or shades in-between on volatility, but none of them do a good job of matching the VIX over any span of time.
What is CBOE's approach to SPX?
The CBOE’s approach combines the prices of many different SPX options to come up with an aggregate value of volatility. Their approach has some advantages.
Do vix futures track spot vix?
The most important thing to understand: VIX futures don't track the spot VIX on a 1:1 basis.