Yo Pit Crazies,

A lot of you might be wondering why I like to watch the VIX. The Cboe Volatility Index (VIX) measures fear in S&P 500 (SPX) options. The S&P 500 is the global benchmark every fund manager wants to beat. Warren Buffett famously bet a hedge fund manager he couldn’t beat the S&P 500. Some years even the great WB doesn’t beat it, and 2025 is one of those years.

My point is that all eyes are on the S&P 500, and the VIX interprets those eyeballs. The VIX is the blood pressure. The S&P 500 is the body. As an off-floor trader now, I want information, and the VIX curve gives it to me. Not too long ago, you could only get VIX information from quotes on the floor. There was no VIX index, only quotes from floor traders to brokers who relayed the message to their clients. Quoting options and spreads happened daily, minute by minute, because off-floor traders wanted to know what was going on. Remember, all known information flows into the S&P 500 pit.

The most controversial part of the VIX is settlement. I’d call that the dark underbelly of VIX and VIX option trading. Here’s why: the exchange calculates the VIX index from SPX option prices for every option with a bid from 23 to 37 days out. Every day we move forward, the weighting changes a bit. On settlement Wednesday mornings, the VIX index can move in unexpected ways. Traders can push around a string of option prices to change the morning Special Opening Quotation (SOQ), the official settlement price, and alter the VRO, which is the symbol for the weekly VIX settlement.

The Cboe Global Markets (CBOE) has done a lot to clean up VIX settlement, and for the most part it works. But there are still VIX settlements I can’t explain by market actions. After doing this for 35 years, I assume some traders have better access to information than I do.

What I want to do is be on the lookout for those signals.

To Your Trading Success, 

AG