Sunday, March 30, 2008

Synthetic VIX Future for TS

Since TradeStation doesn't support VIX futures, here is a way to keep track of the near term future premium. Using put/call parity, you can construct a synthetic VIX future from option prices (close enough for our purposes - no need to present value this calc because rates are low and time to exp is short).

Insert symbol $VIX.X as data1, VIX DE as data2, VIX PE as data3
You can hide data2 and data3 (these are the near term call and put symbols, respectively.

This indicator plots the call and put combo (basically a synthetic future) premium/discount to the VIX cash index. The two inputs are the strike price, in this case, 25 and ArbValue(.85) which changes the color from white to red (sell) or green (buy).

Each month, you have to switch the options to the next month and keep the options around the money, ie, if the vix goes to around 30, use the 30 options. Hope this helps.


inputs: StrikePrice(25), ArbValue(.85);
var: CallAvg(0), PutAvg(0), diff(0);
CallAvg = (insidebid of data2 + insideask of data2)/2;
PutAvg = (insidebid of data3 + insideask of data3)/2;
diff = CallAvg - PutAvg + strikeprice - close data1;

setplotcolor(1, white);
if diff > ArbValue then setplotcolor(1,red);
if diff < -ArbValue then setplotcolor(1,green);

Plot1(diff, "SynthFuture");

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