Interpreting VIX Vertical Spread Marks Across Expirations

Summary

The document raises a market-pricing question about VIX options on futures. It observes that one-dollar-wide vertical spreads marked at half their strike width appear to share approximately the same strike across expirations, even when VIX futures are in contango. The author asks whether this pattern signals an expectation for VRO settlement, and why a front-month-looking level would persist into later expirations rather than reflect a changing expected VRO path.

The note offers possible influences, including the volatility surface and put-call arbitrage, but it contains no answer or supporting analysis. It therefore documents an observed relationship and hypotheses, not a confirmed explanation or trading signal. It does not specify the construction of the mark, quantify the pattern beyond its stated example, or establish whether the same behavior persists under other market conditions.

Key ideas

• The question describes similarly priced one-dollar VIX vertical spreads at a common strike across expirations.
• The observed pattern is discussed in the context of a contango VIX futures curve.
• The author asks whether the shared strike reflects expectations for VRO settlement or its future path.
• Volatility-surface effects and put-call arbitrage are suggested as possible influences, without a confirmed explanation.

Tags

# VIX options: vertical mark price vs. term structure


# VIX options: vertical mark price vs. term structure












Does anyone have any hypothesis why, for options on a future series, vertical spreads priced at half the strike difference should exhibit the same strike across all expirations, regardless of term structure?

For example, as of early Sep 2022, with VIX futures in contango ranging from around 25 to 28 and VIX itself at a little over 25, the \$1-wide verticals with a mark price of $0.50 are sitting at roughly a 23 strike all the way out to next May.

Is this implying anything in particular? Is that 23 strike simply a market expectation of the next VRO settlement, and if so, what would cause that to propagate all the way out to the back months? I would instead think the back month strikes would reflect some expectation of future VRO path, rather than be identical to the front month.

I assume vol surface and put/call arb are feeding back into these prices, but it's almost as if somebody large is running an overly simplistic model. Seems hard to believe, because this has been going on for years.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.