3 ms·

I think the entire VIX formula should be restudied as the options market it has been based on is very different now The SPX index options and SPY ETF options n

I think the entire VIX formula should be restudied as the options market it has been based on is very different now The SPX index options and SPY ETF options now have 20 options series trading at once at any given point in time. There is a front series expiring every single day. This is very different from 1993 when VIX started or the aughts or even last year. The volatility curve is front loaded by greed, but when opex was only quarterly or monthly, this pile up could more accurately accumulate into the VIX fear guage that we know and have studied comprehensively Now with “fear” diluted amongst so many options contracts, I really think this should all be reevaluated. The VIX index and VIX futures and VIX futures options and VIX ETFs based on selections of VIX futures all rely on the trading activity of SPX options, and this formula doesnt have the same inputs anymore

tryptophan 8y ago
Although there are a lot more options nowdays(heh), I'm pretty sure that the VIX only looks at implied volatility in options ~30 days to expiry. So the new, short term options do not factor into its calculation.
- gammateam 8y ago
  > I'm pretty sure that the VIX only looks at implied volatility in options ~30 days to expiry. even then, this factors into the point. Implied volatility is just how high over the theoretical price of the option people bid. If the greediest speculators aren't bidding those up anymore, and instead of piling into nearer term options expiring every day, then the ~30 day options aren't reflecting the same sentiment.
- quantgenius 8y ago
  The VIX index is the average implied volatility of a theoretical set of options trading 30 days out by interpolating the implied vols of a bunch of options. However, what is being discussed here is VIX FUTURES. The price of a VIX futures contract is whatever clears the market based on demand and supply not some calculation (the prices of the options used for the VIX calculation are also whatever clears the market, not something off some ideal volatility surface but that is besides the point). More options, less options or whatever don't make any difference. While VIX futures do cash settle to the special opening quotation of the VIX on expiration day, and while the correlation between the VIX index level and the futures is quite high, they don't necessarily move in lock step or even necessarily in the same direction. While models that tell you what the theoretical price of something is are great at potentially identifying situations where there are mispricings among assets to each other, any mental model where the price of an asset is based on some theoretical calculation is dangerous when trading. The prices of traded things are based purely on demand and supply.
  - TimMurnaghan 8y ago
    The original VIX used to to be that. But for some time now (approx 2009) it's been a synthetic variance swap made up of a weighted sum of the "bunch of options" (weighted by square of the strike). The huge advantage that this makes over an actual implied vol is that it becomes replicable. And it's close enough to being the "fear index" of the popular press.
cat199 8y ago
> I think the entire VIX formula should be restudied https://www.cboe.com/micro/vix/vixwhite.pdf https://www.cboe.com/micro/vix/vixwhite.pdf actual forumula is time agnostic; VIX itself is an application of formula to particular inputs > The VIX index and VIX futures and VIX futures options and VIX ETFs based on selections of VIX futures all rely on the trading activity of SPX options, and this formula doesnt have the same inputs anymore from above link: "In addition to the VIX Index, Cboe calculates several other broad market volatility indexes including the Cboe Short- Term Volatility Index (VXST SM ) - which reflects 9-day expected volatility of the S&P 500 Index, the Cboe S&P 500® 3-Month Volatility Index (VXV SM ) and the Cboe S&P 500® 6-Month Volatility Index (VXMT SM ). Cboe also calculates the Nasdaq-100® Volatility Index (VXN SM ), Cboe DJIA® Volatility Index (VXD SM ) and the Cboe Russell 2000® Volatility Index (RVX SM ). Currently, RVX futures are listed on CFE and RVX options trade on Cboe. " but yes, agree, perhaps one should rely on the VIX number itself less readily..
- gammateam 8y ago
  My point is that the inputs don't gauge market fear, and that should be restudied. Market fear is just the summation of spreads and implied volatility of the some of the index's options contracts, but if all the liquidity in any series has been diluted amongst having more series then you aren't going to get the same results or indication of market sentiment in the VIX number.

tryptophan 8y ago

Although there are a lot more options nowdays(heh), I'm pretty sure that the VIX only looks at implied volatility in options ~30 days to expiry. So the new, short term options do not factor into its calculation.

gammateam 8y ago
> I'm pretty sure that the VIX only looks at implied volatility in options ~30 days to expiry. even then, this factors into the point. Implied volatility is just how high over the theoretical price of the option people bid. If the greediest speculators aren't bidding those up anymore, and instead of piling into nearer term options expiring every day, then the ~30 day options aren't reflecting the same sentiment.
quantgenius 8y ago
The VIX index is the average implied volatility of a theoretical set of options trading 30 days out by interpolating the implied vols of a bunch of options. However, what is being discussed here is VIX FUTURES. The price of a VIX futures contract is whatever clears the market based on demand and supply not some calculation (the prices of the options used for the VIX calculation are also whatever clears the market, not something off some ideal volatility surface but that is besides the point). More options, less options or whatever don't make any difference. While VIX futures do cash settle to the special opening quotation of the VIX on expiration day, and while the correlation between the VIX index level and the futures is quite high, they don't necessarily move in lock step or even necessarily in the same direction. While models that tell you what the theoretical price of something is are great at potentially identifying situations where there are mispricings among assets to each other, any mental model where the price of an asset is based on some theoretical calculation is dangerous when trading. The prices of traded things are based purely on demand and supply.
- TimMurnaghan 8y ago
  The original VIX used to to be that. But for some time now (approx 2009) it's been a synthetic variance swap made up of a weighted sum of the "bunch of options" (weighted by square of the strike). The huge advantage that this makes over an actual implied vol is that it becomes replicable. And it's close enough to being the "fear index" of the popular press.

cat199 8y ago

> I think the entire VIX formula should be restudied https://www.cboe.com/micro/vix/vixwhite.pdf https://www.cboe.com/micro/vix/vixwhite.pdf actual forumula is time agnostic; VIX itself is an application of formula to particular inputs > The VIX index and VIX futures and VIX futures options and VIX ETFs based on selections of VIX futures all rely on the trading activity of SPX options, and this formula doesnt have the same inputs anymore from above link: "In addition to the VIX Index, Cboe calculates several other broad market volatility indexes including the Cboe Short- Term Volatility Index (VXST SM ) - which reflects 9-day expected volatility of the S&P 500 Index, the Cboe S&P 500® 3-Month Volatility Index (VXV SM ) and the Cboe S&P 500® 6-Month Volatility Index (VXMT SM ). Cboe also calculates the Nasdaq-100® Volatility Index (VXN SM ), Cboe DJIA® Volatility Index (VXD SM ) and the Cboe Russell 2000® Volatility Index (RVX SM ). Currently, RVX futures are listed on CFE and RVX options trade on Cboe. " but yes, agree, perhaps one should rely on the VIX number itself less readily..

gammateam 8y ago
My point is that the inputs don't gauge market fear, and that should be restudied. Market fear is just the summation of spreads and implied volatility of the some of the index's options contracts, but if all the liquidity in any series has been diluted amongst having more series then you aren't going to get the same results or indication of market sentiment in the VIX number.