VIX futures vs VIX synthetic futures
law of one price in action
Here’s an FYI that reinforces a lot of moontower 2025 writing on option synthetic futures.
This is from my IBKR screens from 10/22:
Spot VIX was 18.4
I highlighted the March VIX future. It had a mid-market of 21.725
The ATM strike for options on VIX expiring in March is 22.
The combo or price of the 22 synthetic =
call price - put price = 3.50 - 3.78 = -.28
Synthetic future = Strike + Combo = 22 -.28 = 21.72
No arbitrage available folks (as expected).
The synthetic future on VIX and the actual VIX futures trade in line.
💡The VIX options typically expire on the Wednesday morning preceding monthly option expiry cycles. The future expires on Thursday morning, 1 day later. For them to trade out of line with one another would imply a significant jump in forward vol for 1 day, and working through that math with our forward vol calculator can be educational. Unless there is an extremely impactful event on that Wednesday, I’d expect the actual and synthetic futures to trade in lockstep. A good homework for option firm trainees might be to draw indifference curves for various DTE (ie 5, 10, 30, 60, 90) of forward vols based on the VIX future vs synthetic future. I haven’t done it, but I imagine it will be self-evident that any variations between the 2 would be worth trading against, justifying why they trade in lockstep.
Like I said I haven’t done this, so I’m going off intuition on how forward vol works. If you are a VIX complex arb trader (I know you’re out there) feel free to correct me.