As all the VIXophiles out there know, beginning October 6, 2014 there is a small change to how the spot VIX index is going to be determined. Instead of the next two standard option expiration series with at least eight days remaining until expiration, the two SPX or SPX Weekly option series that expire closest to 30 days will be used to determine VIX. Remember that when we say SPX Weeklys this refers to SPX options expiring several weeks into the future, not just the next couple of Fridays. I think when people hear SPX Weeklys going into the VIX calculation that there is some misunderstanding around this change.
Here’s a pretty straightforward example of what is different. On Friday October 3rd VIX was calculated using standard SPX options expiring on October 17th and November 21st. On Monday October 6th the SPX Weeklys that expire on October 31st and November 7th will be used to determine VIX. The SPX and/or SPX Weekly options that contribute to the VIX calculation will always have somewhere between 23 and 37 day left to expiration.
Here are some other important things to know –
- There is no change to the VIX methodology, just the option series being used will not more closely match the 30 day time horizon that VIX was designed to measure.
- VIX will continue to be a standard 30 day measure of implied volatility determined using S&P 500 index option pricing.
- There is no change to VIX futures or options pricing or markets.
- There is no change with respect to how VIX futures and options will be settled.
- If you are old school or want to keep up with 30 day implied volatility using standard SPX options series as the inputs, CBOE will continue to calculate a 30 day implied volatility measure using standard SPX option series under the ticker VIXMO.
If you have questions – fire away at firstname.lastname@example.org – I’ll try to address them in this space in the near future.
Finally, I have a noon Chicago webcast on October 6th where I will discuss volatility trading in the 3rd quarter this year, but also address this small change to determining VIX. You can still register at www.cboe.com/webcasts