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Sunday, May 26th 2019
Futures Prices Implied from Options Prices for Indexes
Indexes price options off of futures prices for each expiration. Here's how ORATS does handles futures prices for indexes.
Summary
Indexes like SPX, NDX, and VIX do not have a tradeable underlying price like stocks and ETFs do. Instead, index options traders use a futures price. ORATS uses put-call parity to solve for the futures at each expiration, and in the ORATS backtester and Data API, the stock price associated with the options trade is the implied futures price for the expiration.
Indexes price options off of futures prices for each expiration. Here's how ORATS does handles futures prices for indexes.
Indexes like SPX, NDX and VIX do not have a trade-able underlying price like stocks and ETFs do. What index options traders use is a futures price. Futures prices are usually quoted quarterly. For example, the CME Group publishes these futures prices for SPX:
Futures prices do not exist for every expiration. Traders need to interpolate or calculate an implied futures rate for the expirations without a corresponding futures price expiration date.
ORATS uses put-call parity to solve for the futures at each expiration. For example, here are the solves 14-minutes before the close when the VIX spot was $15.98.
Here are prices from Barchart for the close when the VIX spot was $15.85:
Here is a graphical look from VIX Central:
In the ORATS backtester, the stock price associated with the options trade is the implied futures price for the expiration. Similarly, in the ORATS Data API, the stock price associated with the options trade is the implied futures price for the expiration.
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Disclaimer:
The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.
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Day trading, short term trading, options trading, and futures trading are extremely risky undertakings. They generally are not appropriate for someone with limited capital, little or no trading experience, and/ or a low tolerance for risk. Never execute a trade unless you can afford to and are prepared to lose your entire investment. In addition, certain trades may result in a loss greater than your entire investment. Always perform your own due diligence and, as appropriate, make informed decisions with the help of a licensed financial professional.
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Be sure to read the OCCs Characteristics and Risks of Standardized Options to learn more about options trading.
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