Problems with TOS VIX option pricing

D

D78

New member
I heard on a recent Vol Views program on Option Insider that the pricing of VIX options on TOS are inaccurate because, if I understood correctly, the pricing is based on the cash rather than the futures. Does anyone know anything about this?
 
Do you have a link where it mentions this ?

As far as I know the VIX on TOS matches the VIX on CBOE so I don't think there is any mispricing
There are cash based and futures based vix products but they have different symbols
Maybe there was an argument about which is better or more accurate which can be debated but I don't see any problems with VIX pricing on TOS
 
I'm pretty sure pricing is correct. What they are most likely referring to is that greeks, IV, other calculations are off/incorrect, because the system calculates those off of spot, as opposed to off of the futures. I don't know that this is what TOS is doing, but if you tried to measure IV of a VIX option by using the spot VIX as the input as opposed to the corresponding forward, then the IV you measure would be incorrect.
 
AKJ said:
I'm pretty sure pricing is correct. What they are most likely referring to is that greeks, IV, other calculations are off/incorrect, because the system calculates those off of spot, as opposed to off of the futures. I don't know that this is what TOS is doing, but if you tried to measure IV of a VIX option by using the spot VIX as the input as opposed to the corresponding forward, then the IV you measure would be incorrect.
Click to expand...

This is correct, this has been pointed out to them quite a number of times over the years, but it seems they can't be bothered. Tastyworks does the same where the greeks are calculated off the cash instead of the futures, again, this was pointed out to them & still no change.
 
Yes, that's exactly what they were saying - you can't trust the greeks on the VIX options because TOS calculates it off of the cash rather than the futures.

What are the workarounds or alternatives if you want to trade VIX options? Anyone have any ideas? Is IB any more accurate?
 
D78 said:
What are the workarounds or alternatives if you want to trade VIX options? Anyone have any ideas? Is IB any more accurate?
Click to expand...

i know this is an old thread but there may still be some people reading it. one alternative to calculating the iv and
greeks is to use a black-scholes pricing model and calculate the iv using the newton-rhapson method. you can't
solve black-scholes for iv but you have all the other inputs for calculating the option fair value. the technique is to pick
an iv value, use it to calculate the option price and then depending on the value, adjust the iv until you get
the correct option price. you assume the iv is, say between 0 and 100, to make the math easy to understand.
you pick 1/2 the range, or 50, and use that in the b-s model. if the fair value is above the known option price,
you know the iv you picked is too high. you now know the iv is between 0 and 50 so again you pick 1/2
the range and solve for the fair price. using this you can quickly converge on the iv. once you have the
iv all the other greeks should be accurate, or as accurate as any model can be.
 
jim leahy said:
i know this is an old thread but there may still be some people reading it. one alternative to calculating the iv and
greeks is to use a black-scholes pricing model and calculate the iv using the newton-rhapson method. you can't
solve black-scholes for iv but you have all the other inputs for calculating the option fair value. the technique is to pick
an iv value, use it to calculate the option price and then depending on the value, adjust the iv until you get
the correct option price. you assume the iv is, say between 0 and 100, to make the math easy to understand.
you pick 1/2 the range, or 50, and use that in the b-s model. if the fair value is above the known option price,
you know the iv you picked is too high. you now know the iv is between 0 and 50 so again you pick 1/2
the range and solve for the fair price. using this you can quickly converge on the iv. once you have the
iv all the other greeks should be accurate, or as accurate as any model can be.
Click to expand...
Jim:
Thank you for posting this work around.
Status1 asked for the reference. It is on the January 25, 2019 Vol Views program 339 at around 43:15 into the program.
Here's the link:

Volatility Views | The Options Insider

Volatility Views Volatility Views is the premier radio program for volatility traders. From interviews with leading industry guests to detailed analysis of ...
volatilityviews.optionsinsider.libsynpro.com volatilityviews.optionsinsider.libsynpro.com
 
Thanks for pointing out where it was mentioned
I did not listen to the entire conversation so it's a little bit difficult to understand the context of what they are talking about but from what I heard him was "Don't trade vix options on TOS because the greeks are wrong "
I did not hear any conversation about the greeks on vix options prior to that

Does anyone trade vix options based on the greeks ? I am not even sure what vix they are talking about VIX , VXX, VVX ?
At one point he was saying that the trade made more sense when vix was at 110 Ho was probably referring to some other vix not the VIX I don't remember VIX being at 110

I am not trading any vix products so I can't say much about it I am just using VIX as a gauge of volatility and as a reference point to see how my trade works under different volatility circumstances so it's good enough for me
 
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