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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, sho

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.

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.