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By Lawrence G. McMillan

The CBOE has created “variance strips,” which is a way in which you can trade entire strips of $SPX options that are constructed according to the formula for determining $VIX.  The beginning of trading awaits SEC approval.

These are primarily designed for professional traders, and many retail brokerage firms may not allow trading in the strips.  Regardless, it never hurts to understand how various products work, for the knowledge may prove useful down the line.

The base symbol for the strip is VSTRP.  At the end of each day, the CBOE will designate what strips are available for trading the next day.  Hence the components of the strip change each day, which means no GTC orders (and the like) are allowed.

Each strip will have a striking price, a month and year as expiration dates.  This striking price is chosen by the CBOE and is the “center” of the strip.  Only one striking price will be traded each day for each expiration month.  The CBOE also determines, daily, the range of strikes to be included in the VSTRP.  The contract multiplier is also set by the CBOE, and will either be $25,000 or $50,000 per contract.  These details will be published on the CBOE website each evening and will be fixed for the entire next trading day.

The VSTRPs are quoted in volatility terms – i.e., buy 1 at 33 or sell 2 at 34.  

What actually happens when you trade one of these, is that the individual $SPX options are placed in your account.  There is actually no such entity as VSTRP as far as the Clearing Corp is concerned.  A piece of CBOE software called Basketweaver converts the trade into individual $SPX options according to the $VIX formula.  

Example: If you buy a VSTRP DEC 1125, your trade might include the SPX Dec 500 put, the 525 put, the 550 put,...the 1125 put, the 1125 call, the 1150 call, ...., the Dec 1500 call.

There is a CBOE tutorial on this subject, which you can stream online, at:


It contains more examples and details.

While it would be difficult, one could come close to replicating $VIX with these VSTRPs, by buying the two near-term strips in the “proper” ratio and then adjusting  each day.  That would certainly require a lot of capital, but this would be a much easier way of replication than actually trading the $SPX options individually.

This article was featured in  The Option Strategist Newsletter Volume 20, No. 18 (published on 10/30/11).

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