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 ...