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VIX Options

CBOE Volatility Index® (VIX®) options began trading on the Chicago Board Options Exchange on 24th February, 2006.

VIX Options Specification

  • Ticker Symbol: VIX
  • Contract Size: $100 times VIX
  • Contract Months: Up to three near-term months plus up to three additional months on the February quarterly cycle.
  • Expiration Date: The Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the month in which the contract expires

VIX option trading advice

Differences between VIX options and stock options

  • VIX options are european style options and hence can only be exercised on the expiration date.
  • VIX options expire on Wednesday as opposed to stock options which expire on a Friday.
  • VIX options are cash settled options.

Relationship between VIX and VIX option prices

Traders who do not fully understand the relationship between the VIX and VIX option prices were often frustrated when the option prices do not seem to follow the movement of the VIX.

After a spike in the level of the VIX, VIX options often appears to be trading at a discount. The reasons for this behavior are because VIX options are european style options and also because the VIX is a mean-reverting index.

Firstly, because VIX options are european style options, they can only be exercised on expiration date, and so their valuation is based on the expected, or forward, value of the VIX on expiration date, rather than the current, or "spot" VIX value.

Secondly, the VIX is a mean-reverting index. Often, spikes in the VIX do not last and usually drop back to moderate levels soon after. So, unless the expiration date is very near, the market will take into account the mean-reverting nature of the VIX when estimating the forward VIX. Hence, VIX calls seem heavily discounted whenever the VIX spikes.

To get a better sense how the market is estimating the forward VIX, options traders can look at the VIX futures price.

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