Worst VIX Manipulation Ever

• Posted by Adam Warner
• on October 21st, 2009

So pay no attention to those odd prints in wildly OTM SPX puts today, it’s VIX-peration.

Just to refresh, VIX options expire today. They cash settle, which means you get delivery of nothing, you simply get a debit or credit on any open option.

The settlement price importantly is NOT the first print you see in the VIX today. It is a calculated number based on the opening quote/print in each of the qualified series in the SPX.

And how does a series in SPX qualify for calculation?

Well, the CBOE will start with ATM’s, and then go OTM in both directions until the encounter 3 consecutive strikes with no bid or no volume. Every option within those bounds gets included in the VIX calculation On a normal day, that might take you down 200 points, but today? There are prints down the SPX November 580 puts

The net result is that every Nov. put down to 580 gets included in the VIX settlement calculation. This sort of thing happens each cycle, and can obviously result in an artificially generated VIX expiration price. Not so much today though, it seems like the general volatility malaise has impacted even the price jigging as nothing much seemed to happen other than the many prints. Not sure the settlement price yet, but it does not seem likely that it’s out of line.

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