VIX Futures Spreads Trading

[Pika]

The VIX Futures have a spread between one month and the other. But, they do not move 1:1 like many other spreads. Could you please explain why? Is there a specific spread ratio that needs to be built to maximize ROI?

Thank you,
Pika

[Mod-MattZ]

@Pika

The VIX Futures have a spread between one month and the other. But, they do not move 1:1 like many other spreads. Could you please explain why? Is there a specific spread ratio that needs to be built to maximize ROI?

Thank you,
Pika

We can not comment on ROI topics.

To the best of our understanding, the difference in the premiums is the result of the way that the VIX is structured and priced. VIX, in essence, represents the volatility of the SP Options. Therefore, what is happening right now regarding volatility may not occur in future months. We can not recommend a specific ratio spread, because we believe it is a result of prevailing fluctuations in the market, and your choice of contracts months should also take into consideration liquidity. As you see, as you move forward in months the liquidity may drop quite substantially. We hope this was helpful. However, we will ask one of the traders who has experience in the VIX Futures instrument to provide further insight.

Thank you,
Matt Z
Optimus Futures Support

[tricompax]

The VIX index is the implied volatility over the next month, so the VIX futures are estimates of the volatility over one month starting in 1, 2, … months. When something exciting happens, we expect elevated vol over the next couple days as the event plays out. It rarely has an impact on vol a few months out. This is why the front tends to move more than the back end.

The spread that maximizes ROI depends on how you think each leg will move. Hope this helps.

[Pika]

@tricompax

The VIX index is the implied volatility over the next month, so the VIX futures are estimates of the volatility over one month starting in 1, 2, … months. When something exciting happens, we expect elevated vol over the next couple days as the event plays out. It rarely has an impact on vol a few months out. This is why the front tends to move more than the back end.

The spread that maximizes ROI depends on how you think each leg will move. Hope this helps.

This makes a lot of sense. If you do not mind me asking, how do you measure volatility in other words going long vol or short vol? Should I look at the SP contract as a guage?
I am still tryin to build a method around a prodict that is a derivative of a derivative.

Thank you for the help.
Pika

[tricompax]

The recent behavior of the S&P tells you what the vol has been recently. There is a wealth of papers in the financial literature with models to describe vol dynamics over time, which you could use to predict the movement of VIX products. However, the market is already quite good at predicting these things so it might be difficult to model this behavior better than the market.