Wednesday, December 16, 2009

VIX Settlement

The settlement for December VIX options came in this morning at $20.84. As mentioned previously this information can be viewed on the CBOE Index Settlement Value page or via the ticker VRO:
[Source: CBOE]

[Source: EduTrader]

Of the two put purchases mentioned in last Thursday's post, the Dec 22.50 put had the highest percentage return. The Dec 24 put could have been purchased for $1.90 on Thursday and settled $3.16 in the money- roughly a 66% return. The Dec 22.50 put could have been purchased for $.70 and settled $1.66 in the money- roughly a 137% return.

Though I'm not an advocate of trading longer term VIX options, I do believe there are often short term opportunities arising with front month options close to expiration. Since front month futures converge with the cash VIX at expiration, they must begin to move more in tandem as expiration approaches. Consequently, there is a short term window where you can more efficiently game the direction of the cash VIX using front month options. The trades mentioned Thursday serve as a prime example.

4 comments:

Anonymous said...
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Anonymous said...

Hi Tyler,

You're doing a great job with this blog, I consider it a must for option traders.

Could you explain why sometimes there are big differences between VIX cash and futures?

Thanks,
Siull

Tyler Craig said...

Siull,

Thanks for your thoughts. I'll post the answer to your question in my next post-

QUALITY STOCKS UNDER 5 DOLLARS said...

Nice tips