November VIX Settlement

The November CBOE Volatility Index Futures (CBOE: VIX) expired this morning at the opening print. The VIX can be a strange and complicated beast due to all the rules that make it up, so for those who do not know: the VIX Nov. futures cease to trade today and a settlement value is determined by calculating the volatility exactly on the opening print of today’s trading in the December options. This gives a snap-shot of volatility exactly as the market opens and the settlement is based off of traded prices, not a mid-point between the bid and ask, like the spot is calculated.

The CBOE Volatility Index November Futures Settlement Value was 22.54. Revisiting the trade I suggested premarket, Monday morning (and which I executed both on Friday and again Monday morning), where we sold the 26/27.50 Call Stupid and bought the 22.50 put for a credit of 0.30, we see that the settlement was above our put strike, making it worthless. So in the end we keep the 0.30 credit. Not bad, and the thesis was correct: steady to falling VIX. And due to the slim margin requirements and short holding period, the net holding period return and overall return on invested capital was quite favorable.