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VIX - Future / Options

Hello traders, a couple of facts on the VIX that you might didn’t know.

VIX is a 30-day volatility measure.

The calculation is based on two strips of SPX options that are used in the VIX calculation (now for example November and December option strips), the strips have a different weighting each day. Every day that passes we have fewer days in the current month and more days in the next month, for example, we have 12 days to the end of this month and 18 days in the next month and we get to 30 days, we can see that the next month has more weight.

For longer-term Futures, expiring in later months they will not track VIX well.

The VIX calculation can be applied to any set of options that have two strips of options in the two front-months. Because of this VIX calculation of volatility can be made for almost every stock, index, or futures.

Examples: VXAPL (AAPL), VXAZN (AMZN), VXGS (Goldman Sachs), VXGOG (Google), VIXIBM (IBM), VXSLV (Silver ETF), and more.

Volatility moves opposite to the direction of the stock, index, or futures almost 75% of the time.

A futures contract has an expiration date but no striking price, unlike an option contract.

If a futures contract is trading at a higher price than the VIX, the futures are trading with a premium. If they trading at a lower price than VIX, the futures are trading with a discount.


VIX 24.3

VXZ2020 24.875 (December future) -> 24.875-24.3 = 0.575 Premium

VXF2021 26.175 (January future) -> 26.175-24.3 = 1.875 Premium

VXG2021 26.225 (Februry future) -> 26.225-24.3 = 1.925 Premium

We can see that the prices are rising, usually when the markets are going up the longer-term futures will cost more and the futures will have premiums.

If the VIX will go up and there will be a big correction or even a bear market the futures will trade with discounts. This since VIX is based on 30 days calculation.

This means that the front contract (the contract this month) will have very high volatility and the long-term futures will have lower volatility because when the markets fall it is usually short but violent moves and there will be an expectation of the market to go sideways or reverse.


VIX 60 (December), VIX Future (January) 52, VIX Future (Febraury) 47.

You can see that discounts can be quite large and the trader that would expect to profit from long-term VIX futures when the market falls, will be very disappointed.

This is why usually traders buy the VIX front-month contract.

One way to hedge the portfolio. (“Insurance”)

Buying VIX calls compare to SPX puts. The calls are better.

When buying puts on SPX about 7% out of the money, today example SPX 3567 and the strike price of the puts 3310. If the SPX will go up in price there will no longer be a 7% protection.

When buying calls on VIX for protection, if the market will decline the VIX could easily go to 30 and even much higher, even if in the short term the VIX will go down. The lower the VIX when we buy the calls the effect will be much greater.

Remember that in March 2020 the VIX was over 80.

This is by the way a huge topic.

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