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I am having some difficulty understanding VXTY futures and how they are priced. The contract specs say it is priced off of OZN options (10yr UST futures options). I understand there is a premium received by options sellers and there is no premium received from a futures contract seller, and the differences in the futures contract price represent carrying cost, borrowing cost, etc.

My question is, do you receive a premium (even if implicitly) from selling VXTY futures since it is a futures contract priced off options?

The additional level of abstraction to get from OZN options to VXTY futures is where I get lost with respect to the fundamentals of derivatives pricing.

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  • $\begingroup$ @noob2 Thanks, that makes a lot more sense. So essentially (ceteris paribus) the premium you derive from selling the futures contract is the same as being short a var swap on the underlying TYVIX index? $\endgroup$ – HK47 Aug 8 '18 at 20:18
  • $\begingroup$ It is similar. But the variance swap is based on variance during a period of time, the future is based on vol (sqrt of variance) at a point in time T. So my comment was sloppy, to say the least. I'll have to rethink it..., sorry. $\endgroup$ – noob2 Aug 8 '18 at 22:28

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