Cboe VIX Premium Strategy Indexes (VPD)
The Cboe VIX Premium Strategy IndexSM (VPD) and the Cboe Capped VIX Premium Strategy Indexes (VPN) are motivated by the negative volatility premium observed for VIX futures: the price of VIX futures tends to be greater than the value of VIX at the futures expiration date. VPD and VPN seek to harvest the premium by selling a sequence of monthly VIX futures over one-month Treasury bills. For both VPD and VPN, the number of VIX futures sold is set to preserve 75% of the value of the portfolio if VIX futures increase by 25 points. The VPN further limits risk with a long VIX call option. The strike price of the VIX call is is 25 points greater than the price of VIX futures.
The VPD and VPN portfolios are rebalanced on a monthly basis, typically at the open on the Wednesday when VIX monthly futures and options expire.