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If the spot VIX is the implied vol off of the options on the SPX Index. But which tradable product would that be? Can’t you technically only buy ETF’s that track the SPX (SPY) or buy the ES futures. The spot VIX index is calculated off the S&P500 futures or the ETF’s?

Second, if the spot is based on the Cash SPX. What would the implied vol for options on 3Month S&P futures be? Would it be the same as the 3 Month VIX futures contracts? What is the relationship between the implied vol on the SPX futures contracts and the equivalent time period VIX futures. wouldn't they be exactly the same?

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  • $\begingroup$ The VIX has a neat definition that you can find in this description from CBOE It is computed using OTM call and put options on the S&P 500 using a near and next maturity. $\endgroup$ – statquant Oct 18 '13 at 19:34
  • $\begingroup$ Yes but the S&P500 is not a tradable product. That is why ETF's and ES futures exist. Are the options based on SPY options or SPX futures? $\endgroup$ – jessica Oct 19 '13 at 15:25
  • $\begingroup$ Matt, I am really sorry. SPX is just the S&P500 index. What I am saying is how can you have options on the index when the index isn't tradable. If I buy 1 call on the SPX and it expires ITM am I going to be delivered a basket of stocks in the SPX? Or am I going to be handed a futures SPX contract. The SPX is just an index. It's not a financial product. The whole point of ETF's and Futures is to replicate this imaginary index with as little tracking error. $\endgroup$ – jessica Oct 21 '13 at 2:45
  • $\begingroup$ please see my answer, I think it makes it clearer $\endgroup$ – Matt Oct 21 '13 at 5:41
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The VIX index is based on near expiry calls and puts on the S&P 500 index. The calls and puts are referencing the index ('SPX') as underlying and are traded on the CBOE. Please note that any options or futures that reference the VIX index are cash settled. Also, for replication and hedging purposes it is important that VIX is basically nothing else than the volatility of a variance swap and because of the nature of this fact VIX can essentially be statically hedged in the underlying calls and puts.

To summarize, the tradable product are near expiry calls and puts on the S&P 500 index and you can statically replicate the VIX index by trading in the calls and puts, similarly to constructing a variance swap (though as noted above, VIX is the volatility of a variance swap not the value of the variance swap itself). The options in turn are based on the S&P 500 index

Here are some references:

Vix Product Sheet by CBOE

Vix Index Calculation

S&P500 Index Option Contract Specs

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