← InstitutionalLesson 24 · 4:42
What does it cost to hold VIX futures?
Summary
You can explain the roll-down: a VIX future in contango sits above the VIX and slides down to meet it by expiry. You can show from real Cboe data why holding and rolling the nearest VIX future lost value over thirteen years while the VIX rose, when it pays in spikes, and who collects the slide.
Key terms
- VIX future
- A price agreed today for what the VIX will be on a later date.
- roll-down
- The slide of a future priced above the VIX down to meet it by expiry.
- roll
- Selling a new near-dated option against the same bought option once the old one has ended or been closed.
- contango
- A volatility curve where later months cost more than near months, the usual shape in calm times.
- backwardation
- A volatility curve where near months cost more than later months, the shape of stress.
- VIX3M
- Cboe's VIX measured for the next three months.
Check yourself
Answer each question to see why the right answer is right.
1. From May 2013 to November 2026 the VIX went from about 13 to about 21, yet $10,000 held in the nearest VIX future, rolled each month, ended at $1.22. Where did the money go?
2. Why must a VIX future meet the VIX by its last day?
3. In the calm year 2017, there were 12 rolls and $10,000 fell to $2,895. Why does a roll cost money if you sell and buy on the same day?
4. From 31 Jan to 18 Mar 2020, $10,000 became $45,588, then $21,068 by 30 June. What does this show about spikes?
5. Who collects the roll-down, and what is the catch?
Finished the video and the quiz? .