Vix Offers on Platform

[Dannnnyhallllll]

Hi both,

Can you please clarify what the Volititily index tracks on the platform. 

I see DFB, Mar and Apr offers. Does the March track the March 19 future, the Apr track the Apr19 future? What does the DFB track?

or do they all track the same future? If so how is this decided is there a date to expiration that you use to then roll to the next contract?

Regards
Danny

[JamesIG]

Mar and Apr will follow their respective Mar19 and Apr19 contracts. The DFB will be priced using our standard undated commodities method, and as a result will not attempt to mirror the cash VIX.

The price will be between the two front month futures contracts, as with all our other undated commodities, and will allow continuous charting with no expiry or rollovers.

As an example

[Justinian]

I have only just noticed the dfb version of the Volatility Index.

The description you have of the dfb is that it seems to operate like the etf VXX?

VXX is notorious for decay because as the month progresses one has to typically sell at a higher future and replace with a closer, lower one each day.

The chart of the ig index dfb does not seem to indicate strong decay. Is that just a trick of the chart or do you have some special calculation that stops it? e.g. such as not gifting the proceeds of decay to those who may want to short the Volatility dfb? 

Is there any documentation I can peruse so that I can understand exactly how it works?

Edited October 18, 2019 by Justinian
added question

[Caseynotes]

41 minutes ago, Justinian said:

I have only just noticed the dfb version of the Volatility Index.

The description you have of the dfb is that it seems to operate like the etf VXX?

VXX is notorious for decay because as the month progresses one has to typically sell at a higher future and replace with a closer, lower one each day.

The chart of the ig index dfb does not seem to indicate strong decay. Is that just a trick of the chart or do you have some special calculation that stops it? e.g. such as not gifting the proceeds of decay to those who may want to short the Volatility dfb? 

Is there any documentation I can peruse so that I can understand exactly how it works?

Documentation on commodities (and VIX) pricing here; https://www.ig.com/uk/commodities

[Justinian]

58 minutes ago, Caseynotes said:

Documentation on commodities (and VIX) pricing here; https://www.ig.com/uk/commodities

Thankyou for that. It pretty much replicates the answer posted by JamesIG earlier in this thread. What it doesn't answer is why doesn't it seem to decay like VXX as the month progresses and the futures curve is in contango.

They both purport to operate in the same way by buying and selling 2 front month futures contracts on a daily basis during the course of a month. I attach charts of Vxx and IG's Volatility Index and you can see how vxx decays over time yet Volatility index does not seem to.  What I would like to understand is what is the difference between them.

 

[Caseynotes]

43 minutes ago, Justinian said:

Thankyou for that. It pretty much replicates the answer posted by JamesIG earlier in this thread. What it doesn't answer is why doesn't it seem to decay like VXX as the month progresses and the futures curve is in contango.

I see what you mean, don't know what IG's "standard undated method" is and though doesn't attempt to "mirror  the cash VIX" there must be some reference to the underlying market within the model (see chart below).