VIX options settle prices on this site are wrong!

The settle prices for the VIX options in the YZ income fund model portfolio are wrong.



For the month of January 2014, the settle price for 13 put is $.64 and for the 14 put the settle price is $1.64. But the published prices are $0.00 and $1.16 respectively. The model portfolio over stated $2816.00 in profits. The model portfolio shows a $1588 profit but the reality is that it had a $1288 loss. The model portfolio should be realistic and accurate. It is not fair to the system creator and his subscribers for the model portfolio to show inaccurate numbers.

It appears the record has been amended for January, however a look through the trade history shows this problem has occurred many times in the past.



See below from a quick Excel analysis. Note that in the vast majority of cases the error is positive, meaning the real PnL was lower by the specified amount; i.e. the strategy did not perform as well as the record indicates.



Open Time Action Qty Symbol PnL Error

11/12/2013 13:51 SELL 32 VIX1320K14 384

10/16/13 13:50 SELL 32 VIX1320W14 -32

10/11/2013 9:59 SELL 8 VIX1316J16 968

8/05/2013 9:52 SELL 8 VIX1321H13 384

7/09/2013 11:08 SELL 32 VIX1321T14 -720

3/14/13 10:50 SELL 8 VIX1320O13 24

2/27/13 12:27 SELL 40 VIX1320O14 120

3/04/2013 9:46 SELL 8 VIX1320O15 24

2/12/2013 9:34 SELL 40 VIX1313B13 280

8/21/12 10:38 SELL 4 VIX1222H14 8

8/20/12 9:46 SELL 4 VIX1222H15 8

8/03/2012 10:18 SELL 4 VIX1222T16 -8

4/30/12 10:36 SELL 4 VIX1216E22 -108

4/12/2012 9:54 SELL 4 VIX1218P19 -144

3/01/2012 10:11 SELL 14 VIX1221O18 812

2/06/2012 12:38 SELL 4 VIX1215B21 -56

1/19/12 15:35 SELL 14 VIX1215N21 784

2/10/2012 10:39 SELL 14 VIX1215N22 980

2/13/12 12:28 SELL 10 VIX1215B20 -700

12/02/2011 13:16 SELL 5 VIX1121X24 1045



The VIX1321T14 trade is interesting since on C2 it expired at a non-zero price while another position in VIX1321T15 (higher strike) expired at zero. This should be impossible.



This seems to indicate a systemic problem. A search for “VIX” in the forums shows the system creator raised the flag back in October but doesn’t appear to have had any response.



Anyone at C2 like to comment?



[LINKSYSTEM_65806998]

The issue here is that VIX options have an unique settlement process in which there is no programmatic way to discover the “official” settlement prices via an automated process. The prices are posted at some (seemingly random) time after the expiration date. (This is as opposed to most other options, where C2 software can look up the settlement prices and handle expiration prices automatically and correctly).

So C2 uses the last-trade price just before settlement as a placeholder value. Then, when the settlement prices are made official and posted, we go back and manually correct any prices that are off by more than a few cents.

In general, I really do rely on system developers to tell me what the settlement prices ought to be. In the case of the YZ Income Fund system, YZ (the owner of the system) has been very proactive and helpful to me, and any incorrect settlement prices that still exist are doubtless my own fault and not his.

In any case, if you notice any settlement errors, I’m happy to fix. I’ll ask YZ for help on this one. Just email him any prices you think incorrect, and then he can submit trouble tickets attached to specific trades, and the settlement prices will be adjusted by C2.

MK