A Very Simple Model for Pricing VIX Futures

Serious volatility watchers are always observing a three-ring circus. The left ring holds the general market. Center ring has options on the S&P 500 and the various CBOE VIX® style indexes and to the right are VIX futures, Volatility Exchange Traded Products like VXX, UVXY, TVIX, and XIV plus associated options. Activities in the three rings usually follow a familiar choreographed pattern. The VIX moves …

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VIX Futures Prices vs. Predictions from a “Simple” Model

It’s been said that we learn more from failures than success. Hopefully the chart below will be an illustration of that. It displays the near real-time prices of VIX futures vs. the predictions of a “simple” model I’ve created.  My intent with the model is not to achieve high accuracy (it won’t) but rather to distinguish between when VIX futures prices are truly unusual, and …

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What is the Arbitrage Driven Range for VIX Futures?

The VIX style calculation for the March 22nd SPX options closed today at 17.06.  The data is from the CBOE’s VIX Term Structure website. The CBOE will use the March SPX options to compute the settlement value for the February VIX Futures when they expire on February 19th. February VIX futures, on the other hand closed at 16.25, a 5% discount to the March SPX …

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VIX Futures—Crystal Ball or Insurance Policy?

Many people seem to believe that the CBOE’s VIX Futures market is attempting to predict upcoming CBOE VIX® values.  I think they are mistaken.  Most futures prices have very little to do with predicting the future. Futures contracts were invented to allow producers/consumer of commodities to limit their business risk by locking in future prices.  In exchange for eliminating price risk, they give up the potential for increased …

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A 3D View of the S&P 500: Price, Time, and Markets

There are lots of valid ways to look at the market.  Obviously price is important, but a number alone (e.g., 1487.85—the Feb 25 S&P 500 close) doesn’t mean much.  Price related metrics like percentage changes and support/resistance levels add value, but adding time as a factor enables some really interesting measures like moving averages and momentum trackers.    My favorite time-related metric is term structure—how the prices of …

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