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iPath S&P 500 VIX ST Futures ETN Message Board

  • hedgehog25 hedgehog25 Jan 15, 2013 11:35 AM Flag

    Why are VIX puts at such a discount this close to expiration?

    Can anyone explain why VIX puts tend to trade at such a discount to the actual value of the VIX even this close to expiration? For example, as of this writing, the VIX is at 13.56, and VIX 14 puts have a BxA of .20x.25, with a lot more on the ask than on the bid (almost a 10:1 ratio). VIX 15 puts have a BxA of .95x1.00. With expiration tomorrow morning, shouldn't they be closer to the difference between the strike and the value of the VIX? This seems to be a pattern rather than an anomaly, especially when the VIX is low.

    I know that a low VIX can easily spike by half a point or more, but it could also go further down, and it doesn't make sense to me that there would be such a discount this close to expiration. Does anyone know of a reason for this?

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    • See...I don't get it. With barely half an hour left, the VIX is at 13.36, and VIX 14 puts are at .25x.30, while 15 puts are at 1.10x1.15. With this kind of close on the S&P (near the HOD, and quite possibly a resistance break and a new post-crash high), I don't see why anyone would expect the VIX SOQ to be significantly higher than where the VIX closes today. If anything, it would be the other way around. So why the discrepancy?

      Yeah, yeah, it's because futures are higher, that's not what I'm driving it. Why would futures settling tomorrow morning still be so much higher? Is there any logic behind it?

      • 1 Reply to hedgehog25
      • 50bps is a lot of difference (sitting at 3:52 VIN is 13.50, futures 14.00x14.05). 25-30 bps is not too unusual, though.

        Maybe it's a hint of the settlement. Maybe they expect futures down 5 or 6 again in the morning (like the past few.)

        The settlement is even outside the VIX-Ask which is 13.98.

        And then maybe futures tank 25bps into the 4:15 close. We shall see.

    • 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.

      • 2 Replies to mattrcarl
      • 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.

      • 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

 
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