VIX Futures & Options

Instructor: David Bartosiak

Dave draws off his years of experience as a Financial Advisor and Analyst to teach others all about finance and the investing world.

The CBOE Volatility Index (VIX) is one of the most misunderstood financial products out there. Taking it a step further, derivatives of this index can be even more confusing. This lesson breaks down the basics of the VIX, VIX Futures and VIX Options.


Understanding the difference between VIX Futures and VIX Options is easy once you understand the underlying component of each, the VIX. When someone says 'VIX', they are most likely referring to the Chicago Board of Options Exchange (CBOE) Volatility Index. The index is commonly used as a 'fear gauge', which investors use to hedge their long equity positions. It's based on the variance in S&P 500 Index options. The thinking here is that if investors are unsure about where the S&P 500 will be over the near-term, then there must be a level of anxiety in the market. The wider the variance or the wider the range of significant premium in the S&P 500 index options, the higher the level of the VIX. The CBOE began real-time reporting of the VIX in 1993 and created the VIX options contract in 2004.

When you understand the calculation of the spot VIX you can start to derive futures and options on it. The Spot VIX is the real-time calculation of the VIX based on the expected volatility of S&P 500 index options with more than 23 days and less than 37 days until expiration. You can draw the parallel here to stocks and stock options. In this case, the spot VIX would be similar to looking at the last closing price of a stock.

Historical closing prices of the CBOE VIX

Unlike a stock, there are no shares of the VIX available for purchase. Rather than buying 100 shares of VIX, investors looking to make money on a spike in the VIX have to either buy futures or options on the VIX.

VIX Options

The way that VIX options contracts work is very similar to the way that ordinary stock options work. There are both call and put options on the VIX. However, whereas most equity options can be exercised on any day between purchase and expiration, VIX options are European-style, which means they may only be exercised on the expiration date.

Thus, with respect to the VIX, call options give the option holder the right to purchase the underlying security at an agreed-upon price at option expiration. On the flipside, put options give the option holder the right to sell the underlying security at option expiration.

VIX options trade on the Chicago Board of Options Exchange. Their expiration dates differ from the expiration dates commonly seen on stock options. Rather than expiring on the 3rd Friday of each month, VIX monthly option expiration occurs at the same time as futures expiration, the first Wednesday 30 days before the next month's stock option expiration.

VIX Futures

VIX futures trade on the CBOE Futures Exchange. The contract specifications for a futures contract define the underlying security or commodity, the contract multiplier or contract size, tick size, contract months and expiration dates for a futures contract. With regards to the VIX, here are the specifications:

  • Ticker: VX
  • Contract Multiplier: $1000 x VIX
  • Tick: 0.01; each tick is worth $10 per contract
  • Contract Months: All 12 months of the year
  • Expiration: The Wednesday 30 days before the 3rd Friday of the next month

A tick is the minimum amount a futures contract can move. There is a margin requirement for trading VIX Futures, similar to other futures contracts. A margin requirement is a deposit required in order to enter into a futures contract trade. The deposit required to trade VIX futures will vary some from broker to broker, although the exchange does set a minimum.

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