Friday, July 27, 2007

VIX Soaring in 4:00 - 4:15 Window

For those who may not be aware of it, the VIX trades from 9:30 to 4:15 ET, with that additional 15 minutes following the close of regular trading on the equity exchanges often providing some insight into the think of traders going into the next session.

Well, at 4:00 ET the VIX was trading at 22.97, but it has jumped to 24.17 – another 52 week high – in the quarter hour since the final bell at the NYSE. My guess is that many had been playing for a bump rather than a plunge in the last half hour and are rethinking and/or hedging their positions going into the weekend during this 15 minute 'last call' window.

5 comments:

Anonymous said...

VIX jump after hour, is that a sign of more sell off to come, or just people hedge over the weekend?

Bill Luby said...

My guess is that this is more of a risk hedging strategy -- perhaps mandated by some internal risk control policies at various firms.

Jim said...

very interesting, Bill.

Anonymous said...

can anyone explain the deep discount, in the past few days, on the VIX call options

Bill Luby said...

anon,

Someone asked a similar question under an old post yesterday, "Why were the august 10 vix calls closing at under 10 when the vix itself closed at 24. Wouldn't they be worth at least 14?"

Here is my reply:

The reason the VIX Aug 10 calls closed at 9.60 yesterday while the VIX closed at 24.17 is that VIX options are based on the expected price of the VIX at expiration, which is still 24 days out. A good way to get a better sense of this is to look at the futures; the August VIX futures settled at 20.07 yesterday.

I hope this helps. If you want more information, you might want to start with "VIX Futures: The One Picture to Remember".

Cheers,

-Bill

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