The VIX Event You Probably Missed

The always exciting CBOE Volatility Index (VIX) options expiration was overshadowed by the Fed's announcement

Adam Warner

Dec 17, 2015 at 9:23 AM

I got so excited about the Historic and Most Important Fed Decision Ever that I literally forgot that CBOE Volatility Index (VIX) options expired on the opening rotation. And… it wasn't really all that exciting. December VIX "settled" at 19.23, which was actually in line with the opening range.

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December VIX had a high of 19.48 in the first five minutes of trading, and a low of 18.84. Thus the settlement seems in line with the actual VIX for a change. It looks a little choppier when you change it to the one-minute chart.

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VIX gapped from 19 straight to 19.4 about four minutes into the trading day, which sure seems like a lot, considering the market itself didn't actually do much right after gapping up.

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You probably (hopefully) know the punch line: VIX settles based on the opening rotation in all qualified S&P 500 Index (SPX) series. All sorts of series trade on the open of every expiration. Here's a link to the Chicago Board Options Exchange's (CBOE) rundown of all qualified series for this go-around.

As you can see, it goes down to the January 2016 1,050-strike puts, because of course it does. By the time the dust all settled, the settlement price looks fair. I'd also add the CBOE is at least transparent about the process. You can see the imbalances ahead of time, and you can see the series that ultimately go into the settlement.

But that doesn't make me ever want to leave a VIX position on for expiration. That is, of course, hypothetical, since I don't trade VIX options. But if I did, I would always close ahead of the expiration runoff. Remember that trading in futures and options stops on the previous close.

It's pure dice rolling on both the opening move in the market and the impact of all these SPX puts on the settlement price. This time it landed in line; last cycle, not so much. Next cycle, who possibly knows?

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research

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