Chapter 14
Calendar Spreads with VIX Options and Futures
In addition to trading the VIX curve using VIX futures or VIX options, it is possible to combine the two instruments into a calendar spread. Taking a position VIX index options with one expiration date and VIX futures with a different expiration date could result in a more favorable risk profile than a spread using all one or another type of option contract.
Remember, VIX options and futures do not match up one for one. VIX option contracts represent $100 times the VIX index, while VIX future contracts represent $1,000 times the index. This relationship will be covered before getting into a couple of strategies. Following this comparison, a variety of possible strategies using a combination of VIX options and futures will be introduced.
COMPARING OPTIONS AND FUTURES
VIX options and futures share the same underlying instrument at expiration, the VIX index. A major difference between the two is the multiplier or the dollar amount each contract represents. A VIX futures contract represents $1,000 times the index, so the dollar amount of a contract with a quote of 20.00 would be $20,000. The multiplier for a VIX index option is $100, so a VIX option with a strike price of 20 would represent $2,000. The VIX option is 1/10th the value of a VIX futures contract, so to keep things on a one-to-one basis, 10 option contracts would need to be bought or sold to match up to a single VIX future contract.
In addition to a dollar-for-dollar ...
