The VIX Fair Value panel answers one question: are VIX futures cheap or expensive relative to what SPX options are actually implying? When futures trade significantly below fair value — especially during a vol spike — it signals that systematic sellers are overwhelming the market, creating a potential long-vol entry.
VIX spot is computed by the CBOE from a portfolio of SPX options spanning 30 calendar days. VIX futures (VX1!) should price near the market's expectation of where VIX will be at the futures expiry — plus a risk premium for the uncertainty. In practice, during fast-moving markets, systematic vol sellers can hammer VX futures far below what SPX options imply is fair.
We replicate the CBOE's own variance-swap formula — but targeted at the VX expiry date rather than a fixed 30-day horizon — to produce a theoretically grounded fair value. The gap between that fair value and the traded VX price is the signal.
VX futures settle on the Wednesday that falls 30 days before the third Friday of the following calendar month. We compute this programmatically and roll to the next contract within 5 days of settlement to avoid expiry distortions.
We then need two SPX option expiries that bracket that settlement date — one expiring just before (near), one just after (far). The forward variance is interpolated between them.
For each bracketing expiry T, we select out-of-the-money SPX options and apply the CBOE VIX white paper variance formula:
Where:
F = K_atm + e^(rT) × (Call − Put)Per CBOE methodology:
The two bracketing expiries give us σ²_near and σ²_far. We interpolate the forward variance at the VX settlement horizon using variance-time weighting:
This is analogous to the CBOE's 30-day interpolation but targeted at the VX expiry date. The result is in VIX units (annualised vol points), directly comparable to the traded VX price.
The raw discount (Fair Value − VX Price) varies with the overall vol regime — a −2pt discount during a low-vol period is very different from the same gap during a spike. To normalize, we maintain a rolling 30-day history of daily closing discounts and compute a z-score:
A z-score of −2 means the current discount is 2 standard deviations below its 30-day average — a statistically unusual cheapness. This is the primary signal input.
Note: the first 30 days of data show raw discount only. The z-score requires sufficient history to be meaningful.
| Z-Score | Signal | Interpretation |
|---|---|---|
| ≤ −2.0 | Strong Buy | VX futures deeply cheap — sellers overwhelmed, high conviction long-vol setup |
| −2.0 to −1.0 | Buy | Mild cheapness — worth watching, early positioning possible |
| −1.0 to +1.0 | Neutral | Futures near fair value — no edge from this signal |
| +1.0 to +2.0 | Sell | Futures mildly rich — vol buyers paying up, avoid new longs |
| ≥ +2.0 | Strong Sell | Futures deeply rich — expensive relative to SPX-implied vol |
These thresholds are starting points based on the strategy's theoretical underpinning. Real edge depends on your entry timing, position sizing, and the broader macro context — this signal identifies when the market is mispriced, not when to sell premium or exactly how to size the trade.
VIX spot represents 30-day forward vol from today. VX futures represent the market's expectation of VIX at expiry — typically 3–6 weeks away. Comparing them directly confounds the roll premium with any mispricing. Our fair value targets the same horizon as the futures, so the comparison is apples-to-apples.
The most common driver is systematic vol selling — products like inverse VIX ETPs, vol-selling hedge funds, and structured product dealers all sell VX futures. During a sudden spike, these sellers can overwhelm the bid side, pushing futures below where SPX options say they should be. The gap tends to close as the spike resolves or the sellers are stopped out.
On calm days with dense options coverage, the estimate closely tracks VIX spot (within ±0.5 points for the 30-day case). During spikes, options spreads widen and strike coverage thins, adding uncertainty. We flag computations with fewer than 10 valid strikes per expiry as lower-confidence.
No. SPX options only trade during regular hours (09:30–16:00 ET). The panel shows the most recent in-hours computation with its timestamp, but the fair value is not updated outside those hours.