I was wondering about disentangling an effect I saw on the market yesterday. I saw nearly all OTM VIX put options with maturity date 15/04/2020 decrease in value while at the same time the VIX took a sharp downfall. What would you give as possible reasons given current market conditions? And, how would you investigate such effects to understand it?
Yes, the VIX took a sharp downfall on 2020/03/02, from 40.11 to 33.42 (-6.69).
But that is not what the 2020/04/15 Put options are based on, they are based on the 2020/04/15 VIX Futures (VIJ20), these went from 23.025 on 2020/02/28 to 23.325 on 2020/03/02 an increase of 0.3.
The Vix options are based on the futures, not the spot Vix value.
$\begingroup$ Interesting and stupid of me, I will consider the futures 'term structure' if one can call it like that in the future.. thanks $\endgroup$ Mar 3, 2020 at 22:13
Maybe implied vol on the VIX fell. An option can lose value even if the underlying goes in its direction if implied volatility falls enough to outweigh the directional effect.
$\begingroup$ Implied vol is a measure you calculate after seeing market prices to calibrate prices to a model you assume; so yeah if you calibrate it to the new price it will change but yeah.. that doesnt explain anything? $\endgroup$ Mar 3, 2020 at 17:12
2$\begingroup$ So what do you think it means when implied vol changes? Its just meaningless? Vega too? How would you then explain a call option decreasing in value as the underlying increases? $\endgroup$– rozMar 3, 2020 at 17:32
$\begingroup$ Well yes, given that we assume a certain model these can explain it, but I was more looking for some model free insights. $\endgroup$ Mar 3, 2020 at 22:25
$\begingroup$ on "is it meaningless": well it depends, if the fitted stochastic process that is implied by the model is totally wrong for the VIX, I would say considering implied vol can be meaningless yes. $\endgroup$ Mar 3, 2020 at 22:30