VIX is the CBOE Volatility index. VIX is an
up-to-the-minute market estimate of expected volatility.
The VIX index calculations are based on and use
real-time S&P 500 Index (SPX) option bid/ask quotes. Two nearest
expiration S&P 500 index options with at least 8 days until the
expiration are used in the calculation of VIX. A wide range of strike
prices is used. The VIX calculation formula averages the weighted prices
of at-the-money and out-of-the money puts and calls to derive expected
Because the VIX formula isolates expected volatility
from other factors that could affect option prices such as dividends,
interest rates, changes in underlying price and time to expiration, the
VIX options offer a way for investors to buy and sell option volatility
without having to deal with factors that have an impact on the value of
an SPX option position.
VIX options expiration differs from other options
expiration. While the options expire on the third Friday, the VIX
options expire exactly 30 days before the next options expiration. The
VIX options expire always on the Wednesday that is thirty days prior to
the third Friday of the following calendar month. This is because the
VIX index was designed to be a consistent 30-day benchmark of expected
market volatility and the VIX index is calculated as a weighted average
of options expiring on two different dates.
VIX options will not always reflect current, real-time
VIX values, at least not until they get close to expiration, and this is
because the underlying value for VIX options is the expected or forward
value of VIX at expiration, rather than the current. For instance, VIX
options expiring in May will be based on June SPX options (expiring 30
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