Volatility Index (VIX) Futures
When day trading any market, it is vital to review and prepare for tomorrow's trading the night before. At VIX future expiration, i.e. the moment exactly 30-days before the subsequent month's S&P 500 option expiration; 30-day implied volatility for the SPX is determined by applying the VIX calculation methodology, which is outlined in the VIX White Paper.
A volatility index or VIX, is used to measure the expected volatility of the underlying within a timeframe in the future, there are at least two ways of calculating implied future volatility, the most widely used method is the one employed by CBOE's VIX calculation, the one which is modeless”.
At the time of their initial introduction in 2004, VIX futures appealed immediately to traders of existing over-the-counter (OTC) variance and volatility swaps, because the settlement procedure as outlined in the VIX White Paper () closely resembles the models used to price these types of products.
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A few weeks ago I wrote an article in which I explained the rationale behind why I have initiated a short position in iPath S&P 500 VIX Short-Term Futures ETN ( VXX ). Over the past few trading sessions, I have added size to my short position in anticipation of declines in the index over the next few quarters.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Others may wonder why the put-call parity is violated for VIX options Then, there are the options that trade underwater, the vastly different vix futures settlement implied volatilities for each expiration cycle and the question of arbitrage between S&P 500 derivatives and VIX contracts.