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The VIX calculation is a weighted average of prices for front-month out-the-money options on the S&P index.

So for VIX futures, this makes sense for the front month vix futures (being based on a front month formula) but what about the months further out? It seems to gets kind of paradoxical, but are back month vix futures based on front month out-the-money options? Seems like we can make a better formula than that

(for a further conundrum, what does that mean for the back month options on an an ETF based on mid-long dated VIX futures based on front-month out-the-money options on the S&P - dont answer that)

insight appreciated

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Yes, all of VIX futures are based on THEIR RESPECTIVE front month options, so you have to realize that for long-dated VIX futures these are long-dated options. So for example settlement value of VIX DEC 12 futures will be based on SPX JAN 13 options, which will be front-month options at the time of VIX futures expiration.

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  • $\begingroup$ wow, thank you this is exactly what I had hoped. I read the entire vix white paper and did not notice where it said that (although the futures contracts would be detailed elsewhere), can you point me to where those particular specs are detailed? $\endgroup$
    – CQM
    May 23, 2012 at 20:28
  • $\begingroup$ I'm sure it's somewhere on the CBOE or CFE website. Here's one quote: "The settlement date for VIX futures is the Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the month in which the contract expires ("Final Settlement Date")." The contracts are the ones used the settlement price calculation. $\endgroup$
    – onlyvix.blogspot.com
    May 26, 2012 at 23:43

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