Settlement Information for VIX Derivatives

Settlement Information for VIX Derivatives

The information on this page relates to the final settlement value calculated on expiration days for VIX derivatives. The final settlement value is calculated from actual opening prices of S&P 500 Index (SPX or SPX Weekly) options. In contrast, the spot (cash) value of the VIX Index is calculated using the mid-point of disseminated bid and offer quotations in SPX and SPX Weeklys option series.

Calculating Settlement Values for VIX Derivatives

VIX options and futures are based on the Cboe Volatility Index, a measure of 30-day expected volatility of the S&P 500 Index. The final settlement value for VIX futures and options is a Special Opening Quotation (SOQ) of the VIX Index calculated using opening prices of constituent SPX or SPX Weekly options that expire 30 days after the relevant VIX expiration date. For example, the final settlement value for VIX derivatives expiring on November 21, 2018 will be calculated using SPX options that expire 30 days later on December 21, 2018.

The opening prices for the SPX options used to calculate the SOQ are determined through an automated auction mechanism on Cboe Options that matches locked or inverted buy and sell orders and quotes resting on the electronic order book at the opening of trading. This auction mechanism is known as HOSS, which uses modified opening procedures on expiration days for VIX derivatives. The trade matching algorithm is pro-rata for all orders and quotes at or better than the clearing price.

In the event that there is no opening traded price for an option, the opening price used in the SOQ calculation is the average of the first bid and offer immediately after the series is opened but prior to the cancellation of any remaining OPG orders. If the first bid disseminated to OPRA by Cboe Options in a particular series is zero, the limit price of the best unexecuted OPG buy order(s) with quantity remaining, if any, is used as the opening bid.

Opening Procedures for VIX Derivatives on Expiration Days

On expiration days for VIX derivatives, Cboe Options utilizes modified Hybrid Opening System (HOSS) procedures that facilitate a single-price open for each constituent SPX series at the price that allows the most orders for that series to match.

• The HOSS opening procedures are modified on expiration days for VIX derivatives because of the strategy order cut-off time for the constituent option series that will be used to calculate the final settlement value for VIX derivatives.
• Currently, the strategy order cut-off time is 8:20 a.m. CT. For more information about the strategy order cut-off time, click here.
• Click here for a copy of Cboe Options Regulatory Circular RG18-018 (Modified HOSS Opening Procedures and Special Opening Quotation and Settlement Methodology for Volatility Index Derivatives and Risk Inherent in Settlement Procedure).
• Click here for a copy of CFE Regulatory Circular RG18-009 (Modified HOSS Opening Procedures and Special Opening Quotation and Settlement Methodology for Volatility Index Derivatives and Risk Inherent in Settlement Procedure).
• All orders (including customer and professional) are eligible to rest in the book, and orders with any valid origin code may participate in the modified HOSS procedures. Non-customer orders may, but are not required to, include an "OPG" (opening rotation order) contingency. All un-executed OPG orders will be (1) considered for purposes of determining series eligible for inclusion in the SOQ; and (2) automatically cancelled prior to dissemination of the first market by Cboe Options.
• All Market-Makers with an appointment in a class comprising the constituent option series may use quotes and/or orders to participate in the modified HOSS procedures. All other market participants may only use orders (and not quotes) to participate in the modified HOSS procedures.

Narrowed OEPW Parameters and APR Parameters

On expiration days for VIX derivatives, Cboe Options narrows the Opening Exchange Prescribed Width (OEPW) and Acceptable Price Range (APR) parameters, which are used to define the maximum allowable range of possible opening prices in the constituent option series that will be used to calculate the final settlement value for VIX derivatives.

• For series that will have an opening trade, the width of the best Cboe Options quote bid-ask (excluding buy/sell orders) must be no wider than the applicable OEPW value and opening trades must be able to execute at a price within a valid range. The calculation for the valid range is the midpoint of the best Cboe Options quote bid/ask (excluding buy/sell orders) plus/minus half of the OEPW. The OEPW value used to determine the valid range for the opening trade price is based on the midpoint of the best Cboe Options quote bid/ask for the series (see table below).
• A series with no opening trade will be allowed to open as long as the width of the best Cboe Options quote bid-ask (excluding buy/sell orders) is no wider than the APR parameter. The APR value used to determine the permissible opening quote width is based on the best Cboe Options quote bid price for the series (see table below). The APR parameter will be returned to the standard settings shortly after the open.

Click here for details about these narrowed OEPW and APR parameters and for other Cboe Options operational system settings applicable on expiration days for VIX derivatives.

Messages Disseminated During Pre-Open and Rotation States until OPEN

On expiration days for VIX derivatives, expected opening information (EOI) messages are disseminated during the pre-open state regarding the constituent option series. EOI messages contain information based on resting orders and quotes in the book, and those messages may include the expected opening price (EOP), the expected opening size (EOS), any reason why a series may not open if the current conditions persisted when the series was to open (e.g., opening trade price would be outside OEPW range, need quote to open) and any imbalance information, including the size and side of an imbalance.

EOI messages are published to Cboe Option's website here on expiration days for VIX derivatives and are disseminated approximately every six (6) seconds or less during the pre-open state. EOI messages are also disseminated over Cboe Options' APIs (FIX, CMI2 and CSM) approximately every five (5) seconds during the pre-open state. Additional "top of book" (BBO) 5-layer book depth market data is available via CSM.

Spot Value Dissemination on Expiration Days

On expiration days for VIX derivatives, Cboe Options does not begin disseminating the VIX spot (cash) value until the constituent option series that Cboe Options will use to calculate the settlement value for VIX derivatives have opened. Click here for more information.

Additional Information & Resources

VIX White Paper
A copy of the VIX White Paper is available here.

VIX Settlement Series
Cboe Options publishes VIX Settlement Series here.

VWB/VWA Indexes
Cboe Options calculates the Cboe VIX Indicative Bid Index (VWB) by applying the Cboe VIX methodology to SPX and SPX Weekly option bid quotations. Cboe Options calculates the Cboe VIX Indicative Ask Index (VWA) by applying the Cboe VIX methodology to SPX and SPX Weekly option ask quotations. For additional information, click here.

Final Settlement Values
For VX futures, click here and for VIX options, click here.