Cboe Volatility Index® (VIX® Index®) FAQs

What is the Cboe Volatility Index (VIX Index)?

The VIX Index is a financial benchmark designed to be an up-to-the-minute market estimate of expected volatility of the S&P 500 Index, and is calculated by using the midpoint of real-time S&P 500® Index (SPX) option bid/ask quotes. More specifically, the VIX Index is intended to provide an instantaneous measure of how much the market thinks the S&P 500 Index will fluctuate in the 30 days from the time of each tick of the VIX Index.

Originally posted (Apr 14 2016); updated (May 15 2018).

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How is the VIX Index calculated?

Cboe Options Exchange® (Cboe Options®) calculates the VIX Index using standard SPX options and weekly SPX options that are listed for trading on Cboe Options. Standard SPX options expire on the third Friday of each month and weekly SPX options expire on all other Fridays. Only SPX options with Friday expirations are used to calculate the VIX Index.* Only SPX options with more than 23 days and less than 37 days to the Friday SPX expiration are used to calculate the VIX Index. These SPX options are then weighted to yield a constant, 30-day measure of the expected volatility of the S&P 500 Index.

* Cboe Options lists SPX options that expire on days other than Fridays. Non-Friday SPX expirations are not used to calculate the VIX Index.

Intraday VIX Index values are based on snapshots of SPX option bid/ask quotes every 15 seconds and are intended to provide an indication of the fair market price of expected volatility at particular points in time. As such, these VIX Index values are often referred to as "indicative" or "spot" values. Cboe Options currently calculates VIX Index spot values between 2:15 a.m. CT and 8:15 a.m. CT (Cboe GTH session), and between 8:30 a.m. CT and 3:15 p.m. CT (Cboe RTH session) according to the VIX Index formula that is set forth in the White Paper. The daily opening value for the VIX Index is taken at approximately 2:15 a.m. (CT). See Cboe Information Circular 16-018.

The generalized formula used in the VIX Index calculation is:

Originally posted (Apr 14 2016); updated (Jun 29 2016); updated (May 15 2018).


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What does the VIX Index measure?

The VIX Index measures the level of expected volatility of the S&P 500 Index over the next 30 days that is implied in the bid/ask quotations of SPX options. The VIX Index is forward looking and seeks to predict the variability of future market movements. This is in contrast to realized (or actual) volatility, which measures the variability of historical (or known) prices.

Originally posted (Apr 14 2016).

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Can I hold the VIX Index?

Unlike the S&P 500 Index that is comprised of a relatively stable portfolio of stocks, the VIX Index is priced using a constantly changing portfolio of SPX options. In fact, in order to maintain a constant maturity of 30 days, the portfolio of SPX options comprising the VIX Index changes slightly every single minute. As such, traders cannot really buy and hold the constituent SPX options of the VIX Index because they would need to rebalance continuously the portfolio of SPX options in order to track the VIX Index through time.

Even though the prices for VIX derivatives are linked to SPX options generally, the valuation of individual VIX derivatives expiring at various points along the term structure can and do reflect very different portfolios of SPX options.

The exact composition of the SPX option portfolio used to settle VIX derivatives is not known during the life of a VIX derivative. For example, traders do not know which SPX calls and puts will be out-of-the-money on a given future date. However, traders do know with certainty the expiration date of SPX options that will comprise the VIX Index on the expiration date of VIX derivatives, as well as how the VIX Index formula will be applied on that date. Since this set of SPX options is stable through time, traders can estimate the forward price of the VIX Index, which is a key driver for VIX futures and options prices.

Originally posted (Apr 14 2016).

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What products are listed on the VIX Index?

Cboe Futures Exchange (CFE) is the exclusive home for trading VIX futures and Cboe is the exclusive home for trading VIX options. Cboe and CFE list standard and weekly VIX derivatives. The settlement value for standard VIX derivatives is calculated using only standard SPX options, which are A.M.-settled and expire on the third Friday of each month. The settlement value for weekly VIX derivatives is calculated using only weekly SPX options, which are P.M.-settled and expire on all other Fridays.*

* Cboe lists SPX options that expire on days other than Fridays. Non-Friday SPX expirations are not used to calculate the settlement values for VIX derivatives.

Expiration
VIX derivatives generally expire on Wednesday mornings. If that Wednesday or the Friday that is 30 days following that Wednesday is a Cboe holiday, the VIX derivative will expire on the business day immediately preceding that Wednesday.

Last Trading Day
The last trading day for VIX options is on the business day (usually a Tuesday) immediately before expiration. If that day is a Cboe holiday, the last trading day for an expiring VIX option will be the day immediately preceding the last regularly scheduled trading day.

The last trading day for VIX futures is on their expiration date (usually a Wednesday).* This is because VIX futures are permitted to trade during a portion of their expiration day. Trading in expiring VIX futures closes at 8:00 a.m. Chicago time - 30 minutes before the auction is held on Cboe to determine their settlement value.

*If that Wednesday or the Friday that is 30 days following that Wednesday is a Cboe holiday, the last trading and expiration day for VIX futures will be the business day immediately preceding that Wednesday.

Originally posted (Apr 14 2016).

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How is the settlement value for VIX derivatives determined?

The final settlement value for VIX futures and options is determined on the morning of their expiration date (usually a Wednesday) through a Special Opening Quotation ("SOQ") of the VIX Index using the opening prices of a portfolio of SPX options that expire 30 days later. The opening prices of these options are determined through Cboe’s proprietary auction mechanism (Hybrid Opening System or HOSS). By providing market participants with a mechanism to buy and sell SPX options at the prices that are used to calculate the final settlement value for VIX derivatives, the VIX Index settlement process is "tradable."

Originally posted (Apr 14 2016).

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What are the goals of a "tradable settlement?"

The VIX Index settlement process is patterned after the process used to settle A.M.-settled S&P 500 Index options. On the days SPX options expire, S&P calculates a Special Opening Quotation (SOQ) of the S&P 500 Index using the opening prices of the component stocks in their primary markets. Traders can replicate the exposure of their expiring SPX options by entering orders to buy and sell the component stocks of the S&P 500 Index at their opening prices. If they are successful, traders can effectively construct a portfolio that matches the value of the SOQ. At this point, the derivatives and cash markets converge.

In a very similar way, the final settlement value for VIX derivatives is a Special Opening Quotation of the VIX Index calculated using the opening prices of SPX options that expire 30 days later. Analogous to the settlement process for SPX options, traders can replicate the exposure of their expiring VIX derivatives by entering buy and sell orders in constituent SPX options. If they are successful, traders can effectively construct a portfolio of SPX options that matches the value of the VIX Index SOQ. By doing so, market participants may make or take delivery of the SPX options that will be used to settle VIX derivatives.

Dual Goals: Replication & Convergence
A tradable settlement creates the opportunity to convert the exposure of an expiring VIX derivative into the portfolio of SPX options that will be used to settle the expiring contract. Specifically, some market participants may desire to maintain the vega, or volatility, risk exposure of expiring VIX derivatives. Since VIX derivatives expire 30 days prior to the SPX options used to calculate their settlement value, a market participant may have a vega risk from its portfolio of index positions that the participant wants to continue to hedge after the participant's VIX derivatives expire.

To continue that vega coverage post expiration for a VIX derivative, a market participant may determine to trade the portfolio of SPX options used to settle an expiring VIX derivative, since those SPX options still have 30 more days to expiration. This trade essentially replaces the uncovered vega exposure "hole" created by an expiring VIX derivative.

Convergence
Since the VIX Index settlement value converges with the portfolio of SPX options used to calculate the settlement value of VIX derivatives, trading this SPX option portfolio mitigates settlement risk. This is because, if done properly, the vega exposure obtained in the SPX option portfolio will replicate the vega exposure of the expiring VIX derivative (i.e., elimination of slippage). Further, because a market participant is converting vega exposure from one instrument (expiring VIX derivative) to another (portfolio of SPX options expiring in 30 days), the market participant is likely to be indifferent to the settlement price received for the expiring VIX derivative.

Importantly, purchasing the next VIX derivative expiration (i.e., rolling) will not accomplish the conversion of vega exposure since that VIX derivative contract would necessarily cover a different period of implied volatility and is based on an entirely different portfolio of SPX options.

Originally posted (Apr 14 2016).

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How is the SOQ generated?

The opening prices for the SPX options used to calculate the SOQ are determined through an automated auction mechanism on Cboe that matches locked or inverted buy and sell orders and quotes resting on the electronic order book prior to the opening of trading. This auction mechanism is known as the Hybrid Opening System (HOSS), which uses modified opening procedures on expiration days for VIX derivatives. All orders and quotes better than the opening price will receive a fill, and the trade matching algorithm is pro-rata for all orders and quotes at the clearing price.

The selection process for the SPX series used to calculate the SOQ for expiring VIX derivatives is identical to that which is used to calculate the VIX Index itself. Specifically, the VIX Index methodology used to calculate the SOQ initially selects a universe of out-of-the-money SPX put and call options. It then excludes SPX series that have a zero bid price. Furthermore, the methodology truncates the SPX series used to calculate the VIX Index after encountering two consecutive series having "zero-bid" prices, even if further out-of-the-money series have "non-zero" bids.

After settlement, Cboe posts the actual series used to calculate the SOQ here.

Originally posted (Apr 14 2016); revised (Dec 27 2016); revised (Jun 18 2018).

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How do I participate in the opening auction?

All orders (including customer and professional) are eligible to rest in the book and orders with any valid origin code may participate in the modified HOSS procedures.

Non-customer orders may, but are not required to, include an “OPG” (opening rotation order) contingency.

"Strategy orders" must be submitted prior to 8:20 a.m. Chicago time.

All Market-Makers with an appointment in SPX may use quotes and/or orders to participate in the modified HOSS procedures.

Originally posted (Apr 14 2016); updated (Feb 7 2017); updated (May 15 2018).

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What rules are applicable to "strategy orders?"

Strategy Orders and Cut-Off Time

Cboe Rule 6.2.01 provides that on expiration days for VIX derivatives, all constituent SPX option orders for participation in the modified HOSS procedures that are related to positions in, or a trading strategy involving, volatility index options or futures (strategy orders) and any change to or cancellation of such order:

  1. Must be received prior to 8:20 a.m. CT for all constituent SPX option series; and
  2. May not be cancelled or changed after 8:20 a.m. CT, unless the strategy order is not executed in the modified HOSS opening procedure and the cancellation or change is submitted after the modified HOSS opening procedures are concluded. Strategy orders may be changed or cancelled after 8:20 a.m. CT and prior to the opening of trading in order to correct a legitimate error. In this event, the Trading Permit Holder shall send an email to the Regulatory Division at Strat_Order_Cancels@cboe.com (by no later than the next business day) setting forth the circumstances that resulted in the change or cancellation.

Strategy Order Characteristics

In general, Cboe Options will consider option orders to be a strategy order for purposes of Cboe Rule 6.2.101 if the orders possess the following three characteristics:

  1. The orders are for option series with the expiration that will be used to calculate the exercise or final settlement value of the applicable volatility index option or futures contract.
  2. The orders are for option series spanning the full range of strike prices for the appropriate expiration for option series that will be used to calculate the exercise or final settlement value of the applicable volatility index option or futures contract, but not necessarily every available strike price.
  3. The orders are for put options with strike prices less than the "at-the-money" strike price and for call options with strike prices greater than the "at-the-money" strike price. The orders may also be for put and call options with "at-the-money" strike prices.

Whether orders are strategy orders for purposes of Rule 6.2.01 depends upon specific facts and circumstances. Cboe may also deem order types other than those provided above as strategy orders if Cboe Options determines that to be the case based upon the applicable facts and circumstances.

No "Strategy Order" Order Type

Strategy orders must be entered individually on a series-by-series basis and each individual order is auctioned separately. There is not a single order type for a "strategy order."

All other option orders for participation in the modified opening procedure, and any change or cancellation to such orders, must be received prior to the opening of the series.

Market participants should be mindful that orders placed after the strategy order cut-off time will be evaluated as to whether such orders are strategy orders or change or cancel a previously placed strategy order by that same market participant.

Originally posted (Apr 14 2016); updated (Jan 19 2017); updated (Feb 6 2017); updated (Feb 7 2017); updated (May 15 2018).

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What type of information does Cboe Options disseminate prior to the auction?

The lead up to the opening auction is open and transparent on all trading days, including expiration days for VIX derivatives. Beginning at approximately 7:30 a.m. Chicago time, expected opening information (EOI) messages are disseminated during the pre-open state regarding the constituent SPX option series. EOI messages contain information based on resting orders and quotes in the book, and those messages may include the expected opening price (EOP), the expected opening size (EOS), any reason why a series may not open if the current conditions persisted when the series was to open (e.g., opening trade price would be outside OEPW range, need quote to open) and any imbalance information, including the size and side of an imbalance.

Types of EOI Messages

The messages that may be disseminated are:

  • Need More Buyers / Need More Sellers

These messages indicate that more liquidity is needed. Additional liquidity is needed if the quantity to buy (sell) represented by orders that are entitled to a fill at the current price exceed the available quantity to sell (buy) at that price. The Quantity field displays the additional quantity needed to successfully open the series, and the Price field displays the widest price at which the series is allowed to open given the current mix of orders and quotes.

  • Expected Opening Price and Size (EOP/S)

These messages are sent for SPX series that have a quantity to trade at the open and are sent when the system has calculated that a trade will occur at the opening under current conditions.

EOP/S messages provide information as of a point in time prior to the SPX series moving into the OPEN state.

EOP/S messages are not designed to be used as a proxy for the prices of the SPX series that will be used to calculate the final settlement value for expiring VIX.

  • Need Quote to Open

These messages are sent when the best quote bid/ask is either not present or too wide to open under rules governing allowable quote width.

Message Dissemination Time Interval

EOI messages are published to Cboe Option's website here on expiration days for VIX derivatives and are disseminated approximately every six (6) seconds or less during the pre-open state. EOI messages are also disseminated over Cboe Options' APIs (FIX, CMI2 and CSM) approximately every five (5) seconds during the pre-open state. Additional "top of book" (BBO) 5-layer book depth market data is available via CSM.

The time interval difference between the dissemination of the messages to Cboe APIs and those posted on the Cboe website is due to a technical limitation. Reduction of the time to post to the website is being explored.

Originally posted (Apr 14 2016); updated (Dec 27 2016); updated (Feb 6 2017); updated (May 15 2018); updated May 31 2018).

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How is the opening price of a series determined?

The opening prices for the SPX options used to calculate the SOQ are determined through an automated auction mechanism on Cboe Options that matches locked or inverted buy and sell orders and quotes resting on the electronic order book at the opening of trading. This auction mechanism is known as HOSS, which uses modified opening procedures on expiration days for VIX derivatives. The trade matching algorithm is pro-rata for all orders and quotes at or better than the clearing price.

In the event that there is no opening traded price for an option, the opening price used in the SOQ calculation is the average of the first bid and offer immediately after the series is opened but prior to the cancellation of any remaining OPG orders. If the first bid disseminated to OPRA by Cboe Options in a particular series is zero, the limit price of the best unexecuted OPG buy order(s) with quantity remaining, if any, is used as the opening bid.

Originally posted (Apr 14 2016); updated (May 15 2018).

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Are all SPX series with a traded price included in the SOQ to settle expiring VIX derivatives?

Not all eligible SPX option series with a traded price are included in the SOQ that is used to settle expiring VIX derivatives. This is because the selection of SPX option series used to calculate the SOQ is based on the following criteria:

  1. A series must have a "non-zero" bid price after the opening trade match, or opening of the series for those which open without a trade, in order to be used in the SOQ calculation; and
  2. The VIX Index formula does not use SPX series with a traded price (even if those series have "non-zero bid" prices) that are farther out of the money once two consecutive series which have "zero" bid prices are encountered.

Originally posted (Apr 14 2016); updated (May 15 2018).

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If the first disseminated market for a series is zero bid, why would that series be included in the SOQ to settle expiring VIX derivatives?

Un-filled OPG orders are cancelled immediately after the opening trade match, or opening of the series for those which open without a trade, but prior to dissemination of the opening bid/ask quote to OPRA by Cboe Options. Importantly, un-filled OPG orders are considered when determining if a series has a "non-zero" bid price, which is relevant determining if that series is eligible for inclusion in the SOQ. This means that a series may be included in the SOQ calculation even if the first quote disseminated by Cboe Options for that series contains a zero bid price. This can occur when there are OPG buy orders with volume remaining after the opening trade match or the opening of the series without a trade.

Assume that at the conclusion of the opening trade match a series has 1 contract to buy for $0.05 (OPG). Assume further that there is no other buy interest and the best offer is $0.15. The $0.05 OPG buy interest would be cancelled immediately prior to the dissemination of the first quote for this series. Thus, the first quote would be $0 - $0.15, even though there was buy interest from the OPG order at the conclusion of the opening trade match. This series would be eligible for inclusion in the SOQ calculation as having a "non-zero" bid price even though the first disseminated market for it would be $0 - $0.15.

Originally posted (Apr 14 2016); updated (May 15 2018).

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Is there a difference between VIX derivatives that settle to a value calculated using standard SPX options vs. weekly SPX options?

Yes. The "time to expiration" component used to calculate the SOQ for expiring VIX derivatives is different depending on whether standard or weekly SPX options are used.

The VIX Index formula has a "time to expiration" component. As a result, the "time to expiration" component used to calculate the SOQ for expiring VIX derivatives is different based on whether standard SPX options are used or whether weekly SPX options are used. This is because standard SPX options are A.M.-settled and expire at 8:30 a.m. Chicago time on their expiration day and SPX weekly options are P.M.-settled and expire at 3:00 p.m. Chicago time on their expiration date.

For expiring standard VIX derivatives, the "time to expiration" component used to calculate the SOQ is exactly 30 days. For expiring weekly VIX derivatives, the "time to expiration" component used to calculate the SOQ is 30 days, plus 390 minutes in order to reflect the extra time that SPX weekly options trade on their expiration date (until 3:00 p.m. Chicago time).

Originally posted (Apr 14 2016).

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Why are there differences between the Intraday (Spot) VIX Index Value and the Settlement VIX Index Value?

The components of these calculations are different and that difference can yield different values for the calculations.

Importantly, the intraday (or spot) value of VIX Index is calculated using the midpoint of bid/ask quotes of SPX options that expire exactly 30-days from the tick of the intraday (or spot) value of the VIX index. The final settlement value for expiring VIX derivatives is calculated using the actual traded prices of series for a single SPX option expiration for an expiring VIX derivative.

The SPX option values used to calculate the intraday (or spot) value of the VIX Index are not tradable prices since they are the midpoint of the current bid/ask spread. Because actual traded prices are used to calculate the settlement value for expiring VIX derivatives, those traded prices tend to lean towards the bid or the ask for the given SPX series. Only rarely will traded prices lean towards the midpoint of the bid/ask spread. As a result, the settlement value calculated for expiring VIX derivatives will tend to lean closer to either the bid or the ask and this value will typically deviate from the intraday (or spot) value calculated for the VIX Index.

Originally posted (Apr 14 2016).

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How is the daily settlement price for VIX futures calculated?

Pursuant to CFE 1202(p), the daily settlement price, which is used in connection with setting margin rates, for a VIX futures contact is generally calculated from the average of the last best bid and last best offer for the VIX futures contract on CFE during the applicable business day prior to the close of regular trading hours on that business day.

Originally posted (Apr 14 2016); updated (Jan 18 2018); updated (May 15, 2018).

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How is the daily closing price for VIX options calculated?

The Options Clearing Corporations (OCC) determines the daily closing price, which is used in connection with setting margin rates, for VIX options.

Originally posted (Apr 14 2016).

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