Ask the Institute

DATE: October 28, 2013

QUESTION:

I want to trade VIX. I understand I would look at prices of VIX futures contracts as the underlying. However, since I don't currently trade futures contracts, and have not established an account with a futures broker, how can I get a current VIX futures price?

ANSWER:
There is an easy and accurate method to estimate the current price of a VIX futures contract without establishing an account at a futures broker. The method is based on the concept that "deep-in-the-money" VIX options trade very close to parity with VIX futures contracts.

For example, if the VIX Index is 18.00, the 10-strike call is considered to be "deep-in-the-money." Therefore, if the 10-strike call is trading at 8.50, then the VIX futures contract is trading at or very near to 18.50. This is calculated by adding the option price to the strike price. In this example, 10 (strike price) plus 8.50 (option price) equals 18.50. To learn more about VIX futures prices, view this segment of "Ask the Institute."