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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (43068)	10/8/2005 12:43:56 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

I think that the future looks a minimum of 30 days forward at all times. At expiry (barring one day open close shenannigans on say the NDX, the future and the cash match). My understanding (which could be wrong) is that VIX futures always look 30 days ahead of whatever the F day you are on even closing. In other words you are guessing what someone thinks the VIX will be 30 days out. That to me is nuts. Eurodollars work sort of the same way BTW. I sure wish they were tied to 100% to the exact interest rates at the close of the contract but they are not. They are based on expectation of interest rates that various banks think they would get for money looking 3 months ahead. cme.com q3 How is the implied forward rate calculated? a3 Eurodollar futures reflect market expectations of forward 3-month rates. An implied forward rate indicates approximately where short-term rates may be expected to be sometime in the future. The following formula provides a guideline for calculating a 3-month rate, three months forward: 1 + 6mth spot rate x 182/360 = (1 + 3mth spot rate x 91/360) (1 + 3mth fwd rate x 91/360) For example: 3-month LIBOR spot rate = 5.4400% 6-month LIBOR spot rate = 5.8763% 3-month forward rate = R 1 + .058763 x 182/360 = (1 +.0544 x 91/360)(1 + R x 91/360) 1.029708 = (1.013751)(1 + R x 91/360) 1.015740 = (1 + R x 91/360) 0.062270 or 6.227% = R = the implied forward rate At ED close you are actually betting on what the market thinks the rates will be 3 months hence not the rate at the frigging contract close. Now, my understanding (which of course could be wrong) is that what you are betting on at the contract close of the Vix future is some freaking average of what some group of clowns thinks it will be 30 days out, as opposed to what it is on the exact day of the close. Perhaps I am totally nuts, but if I am right then that freaking expectation could be anything (most likely anything to screw the retail investor). I would just assume be dead wrong on this because if I am I would be willing to trade these things. Mish