• VIX expiration today – what does this typically mean?

    by  • December 19, 2012 11:47 am • Broad Market Analysis, Quick Hits • 1 Comment

    Today, options on December VIX futures expired.

    Unlike equity options, VIX options expire on Wednesday, typically during expiration week, but sometimes the week after expiration. Since many investors typically buy VIX calls, in order to make a killing on a huge VIX advance on a sharp market pullback, or as a hedge to a long portfolio, our working theory is that the market may face stiff headwinds in the Wednesday through Friday of expiration week, during expiration weeks in which VIX options expire on Wednesday.  The headwind is a result of fresh VIX call buyers coming into the marketplace looking to replace expired calls.  Sellers of the VIX calls are likely to hedge some of their risk by shorting S&P futures, creating a headwind that might not be in existence when VIX options expire the week after expiration.

    The below data suggests this theory has something to it, as we compared expiration week returns from Wednesday through Friday during weeks in which VIX futures options expire during expiration week versus expiration weeks when they do not expire.  We studied data since 2010 since this is when VIX option trading began to skyrocket.


    Todd Salamone is a graduate of The Ohio State University. As Senior Vice President of Research, he oversees the strategies and analysis used in supporting Schaeffer’s various option recommendation services. He is the author of the company’s weekly e-newsletter, Monday Morning Outlook, and a contributor to Bernie Schaeffer’s SENTIMENT magazine. With more than 18 years of trading experience at his command, Todd manages numerous alert services for Schaeffer’s, and has introduced many sentiment-based indicators to its subscribers. Todd has presented option strategies to retail investors in cities throughout the U.S., and is a frequent commentator on financial markets via print, radio and television, including CNBC, The Wall Street Journal, and MarketWatch.


    One Response to VIX expiration today – what does this typically mean?

    1. akabeachguy
      December 19, 2012 7:46 pm at 7:46 pm

      Thanks for shining a light on a subject I otherwise would never have come across or even knew existed!

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