Answers (cont’d)
| Question 8: E - One of the quirks of the VIX is that it has a tendency to look weaker on Fridays and stronger on Mondays, even when there has been no real change in the market’s assessment of volatility. This happens because traders tend to lower their bids ahead of weekends and/or holidays to avoid needlessly paying for time decay. This gives the illusion of a drop in volatility, but a better description would be a forwarding of the calendar. Likewise, when traders return from a weekend and/or holiday, the calendar has caught up to the dollar price of the option, giving the illusion of a lift in volatility that is especially pronounced near the open. In reality, though, volatility assumptions stayed the same.
Question 9: C - VIX calls and puts expire 30 days, not 90, prior to the next month’s expiration of S&P 500 index options. Answers A, B and D all are true statements regarding VIX options. Question 10: True - A VIX future is a bet on where the VIX will be on the day the future expires. That is why you can, and often do, see disparities between the VIX and a given future. |
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