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VIX/VIX Futures Spread

The gap between VIX futures and the VIX index has been moving into unchartered territory.  The spread between the front month VIX futures and the index has hit a record level.  The trade that should work in this situation is to go long March calls and puts, delta hedge the options, and short the March VIX future’s contract vega neutral.  A bit difficult to implement, which is probably why the spread persists – along with the fact that traders and investors are getting long volatility through the futures market in anticipation of a possible market correction.

Record spread

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3 Responses

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  1. Frank says

    I trade vix future spreads and of course im banking on certain months to curve down like march did to april..i will note that the etn’s are definately messing with the curve and although there is record contango i still believe athe term structure will flatten by a few points. It may happen from the farthest back futures coming in. Your thoughts?

  2. Sam says

    March VIX futures are a bet on VIX at March expiry, i.e. the price of options expiring post-March, so buying March calls & puts isn’t a hedge… This is a common misunderstanding, I think.

  3. SurlyTrader says

    You are correct that VIX futures is a bet on the VIX on the morning of the date of the contract expiration. Trading April options would be a better choice if holding the futures contract to expiration.



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