Jul 21, 2010

VIX Expiration

About a month ago I made a prediction - VIX will expire at 26.58 +/- 5.86 vs market's forecast (derived from futures and options prices) of 28.50 +/- 7.56. I'm still waiting for the official $VRO print, but last night VIX closed at 23.93, and opened this morning at 23.61, making my forecast closer.

It was interesting to note that even short-tern VIX options command exorbitant premiums. For example, 26-strike calls that had only overnight risk closed at 0.05-0.1. That was not a misprint - 2 points OTM calls were nickel bid and I sold one contract (just to test the market, not as a strategy) Implied volatility bid was 130% .

EDIT: VRO @ 23.79

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