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Settlement Process

 

Settlement Process

The underlying instrument that determines the cash settlement value of a VIX® option at expiration is the VIX index. At expiration, the holder of an in-the-money VIX option will receive a cash payment based on the amount the option is in the money. Consider these two brief examples:

Example 1: Settlement at expiration of a VIX Call:

 

Oct VIX 20 Call
October VIX Settlement = 22.10

 

Call Settlement = $100 x (VIX Settlement - Call Strike Price)

 

$210 = $100 x (22.10 - 20.00)

 

Long Option Holder Receives $210
Short Option Holder Pays $210

   

Example 2: Settlement at expiration of a VIX® Put:

 

Long 1 Oct VIX 25 Put
October VIX Settlement = 22.10

 

Put Settlement = $100 x (VIX Settlement - Put Strike Price)

 

$290 = $100 x (25.00 - 22.10)

 

Long Option Holder Receives $290
Short Option Holder Pays $290

 

 
 

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CBOE Volatility Index (VIX)