Wednesday, February 13, 2008

VIX February Options Calendar Anomaly

Just a quick note to remind anyone who is trading VIX options that the February options expirations calendar [which is pinned at the bottom of the "VIX & Sentiment Links" in the upper right hand corner of the blog] has some unusual features that are the result of the timing of Good Friday, which falls on expiration week in March this year.

Without getting into all the details, the bottom line is that the expiration day for February's VIX options is Tuesday, February 19th, instead of the usual Wednesday. With the President’s Day holiday falling on Monday the 18th, this moves the last trading day in VIX options up to Friday, February 15th – the day after tomorrow. Note that the same expiration and last trading dates also apply to VXN and RVX options.

Anyone who wishes to dive into the details of the VIX options calendar and other related information is encouraged to brush up on the VIX options contract specifications.


Unknown said...

Thanks Bill... looking at the increasing spread between the cash $VIX and the FEB VIX futures:

makes me wonder if most (retail) VIX traders are aware of this anomaly. I tend to expect the two to converge near the settlement date, and given that the last trading day is this Friday, the spread seems to be going in the wrong direction.

Of course, I don't know whether it means that the cash VIX is going to go up, or the FEB VIX futures is headed down. If I knew that, it'd be a terrific 'edge' going into expiration! :)

Anonymous said...

is it normal to see backwardation in the VIX futures?? No cost to carry so perhaps it is???

Bill Luby said...

Backwardation is very common with the VIX, particularly when the VIX spikes. Check out the chart I posted back in September 2007 in VIX Futures and Recent Market Action for a good example.



Anonymous said...


especially remarkable at the moment is the fact that the deltas between VIX and VXD (Dow Jones Volatility Index), VXN (Nasdaq 100 ...) and RVX (Russel 2000 ...) are -from a historical and statistical perspective- way above average values (in other words: the VIX is -from a historical perspective- relative high in comparison to VXD, VNX and RVX):

current value: 2.81
100 day arithmetic mean: 2.03 (1 sd: 0.51)
1 year arithmetic mean: 1.58 (1 sd: 0.72)
all time arithmetic mean: 0.77 (1 sd: 1.22)

current value: -0.47
100 day arithmetic mean: -3.72 (1 sd: 1.15)
1 year arithmetic mean: -2.96 (1 sd: 1.84)
all time arithmetic mean: -10.43 (1 sd: 8.95)

current value: -4.16
100 day arithmetic mean: -6.13 (1 sd: 0.92)
1 year arithmetic mean: -5.82 (1 sd: 1.01)
all time arithmetic mean: -6.68 (1 sd: 1.63)

1 year = 255 trading days

So all "VIX" deltas (vs. VXD, VXN and RVX) are currently at or around 1.5 up to 2 standard deviations above their historical arithmetic means.

Trading the odds:
Unfortunately it is difficult and tricky to take advantage of the current phenomen because a VIX vs. VXD future spreads (long VXD, short VIX future with identical expiration month) can only be entered at or around 1.80 points (settlement values) and therefore are hinting that VIX and VXD will converge in the near future, and VXN futures are trading with a huge bid/ask spread of more than 1 point (= USD 1,000.00 per contract).

Nevertheless at least concerning VIX vs. VXD future spreads 1.80 is -from a historical perspective- close to the all time maximum of daily settlement values (2nd and 3rd month spreads were never better than 2.00 for the 2nd month and 2.17 for the 3rd month).

I beg your pardon again for not being a native speaker.

Best regards
(who sent you -anonymously- the link concerning futuresource VIX/VXD/VNX/RVX future quotes a few month ago)

Anonymous said...

... and in addition here is an updated link concering's Volatility indexes and future quotes including $VXV now ...÷r=row&fields=desc%2Cmonthyear%2Cbid%2Cask%2Clast%2Ctime%2Clow%2Chigh%2Cvol%2Copenint%2Cnewsettle%2Cchgoldsettle

Best regards

Anonymous said...


some statistics concering backwardation in VIX futures:

Backwardation can be (among others) -in principle- calculated by the ratio of
VIX+1/VIX+2 (+1 means front month future, +2 means the VIX future expiring 2 month in the distance).

If the ratio is above 1.00 (means VIX+1 > VIX+2) fronth month and second month VIX future are trading in backwardation, otherwise in cotango.

If you follow the same procedure for all available expiration month in VIX futures, an indicator concerning backwardation may be calculated as
* VIX+2/VIX+3
* VIX+3/VIX+4
* VIX+4/VIX+5
* VIXn-1/VIXn
(up to 12 month in the future)

Any final result above 1.00 would indicate a backwardation over all available VIX futures, and the higher the result above 1.00 is, the stronger the backwardation (and vice versa the lower the value below 1.00, the stronger the cotango, indication an increasing VIX in the future).

Following this procedure one would come up with the following statistics:


Last 100 trading days: 54 days in backwardation = 54% (ratio above 1.00), 46 in cotango.
Highest reading: 1.128 on December 3, 2007
Lowest reading: 0.887 on October 10, 2007
Current value: 1.063

Last 255 trading days: 105 days in backwardation = 41.18% (ratio above 1.00), 150 in cotango.
Highest reading: 1.359 on August 16, 2007 (huge deltas between VIX futures)
Lowest reading: 0.711 on February 13, 2007

All time (977 trading days since release of VIX futures): 129 days in backwardation = 13.20% (ratio above 1.00), 848 in cotango.
Highest reading: 1.359 on August 16, 2007 (huge deltas between VIX futures)
Lowest reading: 0.686 on December 15, 2006

(these data may have a few inconsistencies because whenever there is a 2 month gap between all VIX futures, the ratio has been set to 1.00; that happened on 86 trading days, but it's last occurence was on August 16, 2006, so handle the statistics with a little bit care)

Best regards

Bill Luby said...

An immense thank you for sharing your research and thinking, Frank. This is a lot of interesting stuff to chew on.

Regarding the VIX deltas, my suspicion is that the unusually high deltas are the result of the financial sector (more heavily weighted in the SPX) being considered riskier (and having higher IV) than technology and some of the other sectors that are traditionally considered to be the most risky. As the IV in the financials gets bid up, it has a disproportionate impact on the VIX (and VXO) vs. the VXN, RVX, and the VXD.

For the record, I would never have guessed that you are not a native speaker. I like your native thinking though!



Unknown said...

Lots of good data and information, Frank. I'm inclined to use a different measure of backwardation/cotango (because I'm more interested in the 'delta' between the two values), but your statistics get your point across.
(And in excellent English, if I might add!)

As we close into the last hours of trading, the spread between the cash VIX and the FEB VIX futures has narrowed throughout today, with the $VIX rising about 0.50 and the FEB futures rising only 0.15-0.20 or so. In terms of the the options 'Greeks' that would correspond to a 'delta' (different kind than above) of 0.30-0.40 -- a slightly out-of-the-money call option.

Not that that means anything, lol... it remains to be seen whether the cash $VIX will rise further, or if the FEB VIX futures drops tomorrow, or (conceivably) both.

I don't expect complete convergence by the close tomorrow -- after all, the FEB futures settle on the opening trade on Tuesday, not on Friday's closing prices -- but it would concern me if the spread didn't close from here... I'm still wondering whether there will be a lot of retail VIX options and futures traders surprised on Tuesday to find that the FEB has settled and that they missed their last opportunity to trade this Friday. I hope not, it could be ugly.

Felix aka thenakedtrader

Bill Luby said...

As the news on FGIC in the past few minutes and the market's reaction shows, the bond insurers are trumping everything for now.

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