Theoretically Vix futures should follow Vix spot,but Vix futures is actually an instrument which is being traded whereas vix spot is not traded. So sometimes it is possible for it to move little differently but finally arbitrageurs will make sure it is following vix spot.
Equity/ Index futures are derived based on simple calculation. It is spot price plus interest. So chances are high that Future follows spot.
India VIX Future is not directly derived from India VIX index. It is a volatility Index, which should actually indicate the volatility of the market. The pricing involves comparatively complex calculation. Computed by using the best bid and ask quotes of the out of the money, present and near month Nifty option contracts. This may be the reason.
Z-connect link on this.
In contracts like Nifty, stocks, and others, everytime there is any divergence between the underlying and the future contracts, arbitrageurs come in and make sure the difference narrows.
So for example if Reliance futures is going up and Reliance spot remains the same, at a certain point arbitrageur will come in and buy Reliance Spot and Sell Reliance futures, and ensure that difference is never more than the theoretical difference.
Similarly in case of Nifty futures, you can buy the entire Nifty basket and short Nifty futures, or vice versa.
The reason VIX is not very efficient in the sense that difference between VIX futures and spot can behave weirdly is because, there is no real way to buy/sell VIX spot (VIX spot involves a complex mathematical formula), and hence arbitrageurs can't really come into play and make the system efficient. But on the expiry day, all VIX futures will get settled to underlying value of India VIX, and this ensures that the difference between spot and futures never really goes up too much.
For all those who were curious on why we have weekly contracts on VIX and not monthly is because of this, by having short contracts, exchanges ensure that difference between spot and futures can never really go up by too much.
Hi AndrewMan, whatever the calculation is future should follow spot with some premium or discount but with VIX spot goes high future goes down, Why like that?
Is there any vix for banknifty future and options ?
Nope , just watch straddle IV …
INDIA VIX futures? Is this tradable? I know VIX, but did not know we have futures and trade! Where can I find it’s data and can we trade this on Zerodha?
India VIX Futures never really took off.