Why are VIX puts at such a discount this close to expiration?
Because the puts and calls on VIX trade based on the futures, not the index (since the index changes minute by minute and is never reconciled exactly with the settlement of the futures and the options.) The settlement for both the futures and options is the same, so the options must respect the futures price (otherwise there would be arbitrage opportunities.)
Futures are currently still north of 14 at 14.10 for January expiration.
which I guess begs the question of why the futes are still so high . . . I ain't complaining, mind you, as I am short a decent sized position of March 15 puts and they haven't really started to move against me . . . it was part of a 25/15 call/put spread I put on when VVIX was at 100 a couple of weeks ago . . . looked like easy money at the time but now it looks like I am going to need to roll it out and considerable cost
Rick - maybe you've reviewed what happens at opex for VIX but my limited look last night seemed to indicate it is often an inflection point (at least for a week or two) - if the trend is up, it reverses down and vice versa.
March index holding at 15.32, April at about 16.40. The whole curve (indexes not futures) was up about 30-35 bps yesterday but that could just be the Monday effect. Still a fair amount of room to the Feb futures at 15.80 and March at 17.20 not to mention that if the market stays pinned in the 1462-1474 range we see a 14 handle on the Feb futures probably by month-end.
Can't figure which direction the expiration is going to be gamed. It's starting to shape up like the September settlement which could indicate low 13s but the way the futures won't give up 14 you wonder if we won't see an upside surprise.
I understand, but that's basically just rephrasing the question, it doesn't explain why. The settlement date for VIX futures is the same as OE. So, why would VIX futures be so far above the VIX this close to settlement? That's essentially the same question.
And yes, I'm aware that the options settlement price is determined by the special opening quote, but historically it doesn't appear to me that VRO tends to end up above the previous afternoon's close any more than below.
You asked why the options were trading where the were - I explained you needed to look at 14.10 as your underlying amount, not the VIX index in the 13.50s.
Why futures are still 35bps (14.05 vs 13.68) above VIN right now is anyones guess. Keep in mind that the indexes can be easily gamed since the difference between VIX at the bid and ask is usually over 100bps (last figures were VIX at 13.60, VIX-bid at 13.00 and VIX-ask at 14.20.)