Volatility Indices Advanced Options on a volatility index Forward-looking

VIX Options

The only listed option whose call wing is the expensive one.

Quick answer: VIX options are options written on a volatility index that settle against the VIX future of matching expiry rather than against spot VIX, which — together with their upward call skew — makes them behave unlike any equity index option.

In simple words

An ordinary option is a bet on where a share or an index goes. A VIX option is a bet on where fear itself goes — specifically on the level of a volatility index like the VIX or India VIX. But there is a trap hiding in that sentence. You cannot buy or hold the volatility index itself; there is nothing to own. So a VIX option does not settle against the index you see quoted on the screen. It settles against the VIX FUTURE for that expiry — a separate, tradable contract that has its own price. That one fact bends everything about how these options behave, and it catches almost everyone the first time.

Here is how badly it can bite. Imagine India VIX is quoted at 19 on the afternoon your VIX call expires, and your call is struck at 17. You would think you are in the money by 2 points. You may not be. If the future your option settles against had already priced in mean reversion and sits at 16, your 17-strike call settles worthless — on a day the index you were watching was at 19. The number on the screen was never the number that paid you.

Not to be confused with: VIX futures, which are the underlying that VIX options settle against, not a competing product. A VIX future is a single directional bet on the level of the volatility index at one date; a VIX option is a bet on that future with convexity and a strike. People also confuse VIX options with buying NIFTY puts as a volatility hedge — the two do overlap in what they pay off on, but a NIFTY put is an option on a tradable index priced with a downward skew, and a VIX call is an option on a non-tradable index priced with an upward skew.

The picture

The call wing is the bid wing

Implied volatility of each VIX option strike, volatility index at 16, with an equity index plotted for contrast.

The two curves are mirror images. On an equity index the out-of-the-money PUTS print the highest implied volatility; on a volatility index the out-of-the-money CALLS do. This is not a quirk — an equity-index put and a volatility-index call pay off in the very same crash, so the same hedgers bid the same disaster from opposite ends, and the skew has to point the other way.

Professional explanation

They settle against the future, not against spot

Every equity option you have ever traded is pinned to its underlying by cash-and-carry: you can hold the stock, borrow against it, and any gap between the option and the deliverable is arbitraged away. None of that machinery exists for a volatility index, because the index is not a thing you can hold — it is a calculation over other option prices, recomputed continuously. So the exchange does the only thing it can: it settles VIX options against the VIX FUTURE of matching expiry, which is itself a tradable contract with its own supply and demand. The consequence is that a VIX option is really an option on the future, and the future can sit well below a frightened spot index because it has already priced the market's belief that the fear will fade. A VIX call can therefore expire worthless on a day spot VIX is elevated, simply because the future it settles against never got there. Traders who model a VIX option as if spot were the underlying misprice it on exactly the days it matters.

The skew points upward — the mirror of an equity index

On a NIFTY or S&P chain the out-of-the-money puts are the expensive wing: everyone wants downside protection, so put implied volatility is bid and the skew slopes down to the right. VIX options do the opposite. Their out-of-the-money CALLS print far higher implied volatility than their puts, and the skew slopes UP. The reason is beautiful and worth sitting with: an equity-index put and a volatility-index call are two tickets to the same event. When the market crashes, the index put pays and the volatility index leaps, so a VIX call pays too. Both instruments are demanded by the same hedgers hedging the same catastrophe, and that permanent, one-sided demand bids the VIX call wing the way it bids the equity put wing. So the upward skew on VIX options and the downward skew on index options are not two facts. They are one fact seen from two sides.

Mean-reverting, floored at zero, and priced off vol-of-vol

A volatility index does not wander like a stock. It is mean-reverting — it snaps back toward a long-run level of roughly the high teens — and it is bounded below by zero, because volatility is a standard deviation and cannot go negative. A lognormal model like Black–Scholes assumes neither of those things, so it misprices VIX options badly, over-charging for high strikes it thinks the index can drift up to forever and mishandling the floor. What actually governs a VIX option's value is VVIX — the volatility OF the volatility index, the expected size of moves in the fear gauge itself. A long VIX call can lose money on a day the volatility index rises, if it rises quietly, because VVIX fell. Practitioners genuinely disagree about the right model here — some fit the futures directly with a mean-reverting SABR-style surface, others model the whole variance term structure — and anyone who tells you there is one settled answer is overselling. Say plainly that the modelling is unsettled.

In India, this is mostly a page about a market that does not exist

Everything above is real and tradable in the United States, where CBOE lists deep VIX futures and options markets. India is not there. The NSE has listed India VIX FUTURES, but their liquidity has been thin to the point of irrelevance, and there is no meaningful India VIX OPTIONS market at all. An Indian reader cannot go and buy a 17-strike India VIX call this afternoon in any size that matters. It would be dishonest to teach this concept as though you could. The practical Indian analogue to a VIX call — a bet that pays off when volatility explodes — is simply buying NIFTY or BANKNIFTY index puts, or put spreads, and wearing the downward skew that makes them expensive. That substitution is imperfect: index puts carry direction and decay that a pure volatility instrument would not. But it is what actually trades here, and pretending otherwise helps nobody.

Formula

A VIX option settles against the future, not spot

C = (F − K) if F is above K at expiry, else 0

The underlying deliverable is F, the VIX future of matching expiry, NOT spot VIX. That is why a VIX call can settle at zero on a day spot VIX is high — the future never reached K. Before expiry the option's value is not a Black–Scholes number in spot: it depends on F and on VVIX, the volatility of the volatility index, because the future itself is what moves. A lognormal model misprices it because the volatility index is mean-reverting and floored at zero.

CValue of the VIX call at expiry, in index points. A put replaces the payoff with (K − F) if positive.
FSettlement price of the VIX FUTURE of matching expiry — the real underlying. Not spot VIX.
KStrike of the VIX option, quoted in index points (e.g. a 17-strike India VIX call).

The upward skew, as one number

RR = σ_call25 − σ_put25 (positive for VIX options: the call wing is bid)

The 25-delta risk reversal measures skew as the implied-volatility gap between the 25-delta call and the 25-delta put. On an equity index RR is negative — the put wing is bid. On VIX options RR is POSITIVE, because the call wing is bid by the same disaster-hedging demand. The sign of RR is the single fastest way to tell a volatility-index option chain from an equity one.

How to read a VIX option before you ever trade one

Find the VIX FUTURE of the same expiry as your option, and use its price — not spot VIX — as the underlying. If you only have spot, you are looking at the wrong number.
Compare spot VIX to that future. In calm markets the future sits above spot (the curve is in contango), so a call needs the future, already elevated, to rise further; in stress the future sits below spot, and a call can be in the money against a future that is lower than the index you are watching.
Note the skew direction. Confirm the out-of-the-money calls carry higher implied volatility than the puts — an upward skew. If they do not, you are misreading the chain or looking at an equity product.
Check VVIX, the vol-of-vol. A VIX option can gain or lose from VVIX alone, so a quiet drift in the volatility index need not move your option the way you expect.
Reject a lognormal price. If your calculator prices the VIX option with plain Black–Scholes in spot VIX, treat the number as wrong, because the underlying is mean-reverting and floored at zero.
For an Indian book, stop and ask whether the instrument even trades. India VIX options do not exist in usable size; price the real hedge — NIFTY or BANKNIFTY puts — instead, and account for the direction and decay they add.

Practical example

NIFTY worked example

Suppose India VIX is quoted at 13 and the one-month India VIX future trades at 15 — futures on a mean-reverting index price toward its long-run level of roughly 17.5, so in a calm market the future sits ABOVE spot. You like a 17-strike India VIX call. For it to pay anything, the FUTURE must finish above 17 at expiry, not spot. Now a scare hits and spot India VIX jumps to 19 on the afternoon of expiry. You feel 2 points in the money. But the market believes the scare will fade, so the settling future prints 16, below your strike. Your 17-strike call settles at (16 − 17) floored at zero = 0. You were right that fear rose, right that spot went past your strike, and you still collected nothing — because the contract paid on the future, and the future had already priced the fade. That gap between the spot you watched and the future you settled on is the entire lesson of VIX options.

BANKNIFTY worked example

Try to run the same trade on BANKNIFTY and you hit a wall that teaches the most important Indian caveat of all: there is no BANKNIFTY volatility index, no BANKNIFTY VIX future, and certainly no BANKNIFTY VIX option. India VIX is computed from NIFTY options only, its futures are thinly traded, and its options market is effectively nonexistent. So a BANKNIFTY trader who wants the payoff a VIX call would give — money when volatility explodes — cannot buy one. The instrument that actually trades is a BANKNIFTY index put, or a put spread: with BANKNIFTY at 52,000, a one-month 50,000 put rises hard when the index falls and its own implied volatility spikes together. It is a good disaster hedge, but it is not a pure volatility play — it carries direction and it bleeds theta every calm day. Substituting index puts for VIX calls is the honest Indian workaround, and naming its imperfections is more useful than pretending the pure instrument is within reach.

Lot sizes used above (NIFTY 75, BANKNIFTY 30) are those in force at the time of writing; NSE revises them periodically. Figures exclude brokerage, STT, exchange charges, stamp duty and GST. Examples are teaching scenarios built on round numbers — they are not historical quotes, not backtests and not trade calls.

Risk note. Selling VIX calls is often marketed as harvesting a rich premium, because their implied volatility is high and usually overstates what arrives. That high implied volatility is high for a reason: the call wing pays off in a crash, the one event during which a short position is largest and least able to be closed. Short volatility-index calls have unbounded loss and gap risk that no calm-market backtest can show you, and they lose in a single session what they accumulate over a year.

Advantages & limitations

What it is good for

They isolate volatility itself. A VIX option pays on the level of the fear gauge rather than on the direction of the index, so it can hedge a crash without taking a view on which way the market drifts day to day.
The upward call skew means the disaster wing is liquid and continuously priced, so a hedger who wants convex crash protection can find a market for exactly the payoff they need.
Their convexity is enormous in a shock. Because the volatility index leaps far faster than it falls, a modest out-of-the-money VIX call can multiply many times over in the exact scenario an equity book is bleeding.
They make the market's view of vol-of-vol observable. Reading VIX option prices tells you what the market is paying for moves in the fear gauge itself — information a plain index chain does not contain.
They separate cleanly from the equity book. Settling on the future rather than spot means their behaviour is legible on its own terms once you accept the future as the underlying.

Where it breaks down

They do not settle on the number you watch. The settlement is against the VIX future of matching expiry, so any intuition built on spot VIX is wrong precisely when spot and the future diverge — which is during stress, when it matters.
Lognormal models misprice them. The volatility index is mean-reverting and floored at zero, so Black–Scholes in spot VIX gives a number that is simply incorrect, and there is no single agreed replacement model to substitute.
Their value depends on VVIX, not just VIX. A long VIX call can lose money on a day the volatility index rises, if it rises quietly and the vol-of-vol falls, which defeats the naive reason most people bought it.
The skew makes the useful wing expensive. The out-of-the-money calls that actually hedge a crash are the bid wing, so you pay the most for the protection exactly because everybody else wants the same protection.
In India they barely trade. India VIX futures are thin and India VIX options are effectively absent, so for an Indian reader this is a description of a foreign market and an argument for substituting index puts, not an instrument to deploy.
The convexity cuts both ways for sellers. The same leap that rewards a call buyer in a crash is an uncapped, gapping loss for the call seller, and it arrives in the one session where the position cannot be unwound at any sane price.

Common mistakes

Treating spot VIX as the underlying. The option settles on the future; modelling it against spot makes a VIX call look in the money when the future — and therefore the payoff — says otherwise.
Expecting the skew to slope down like an equity chain. On VIX options the CALL wing is the expensive one, and a trader who assumes puts are richer sells the wrong wing and is short exactly the disaster everyone is hedging.
Pricing them with Black–Scholes in spot VIX. The index is mean-reverting and bounded at zero, so the lognormal number is wrong, and acting on it means paying or receiving a price the market will never validate.
Ignoring VVIX. Buying a VIX call as a pure bet that the volatility index rises overlooks that its value moves with vol-of-vol, so the index can rise while the option falls.
Assuming the high implied volatility of VIX calls is free premium to sell. It is high because it hedges a crash; shorting it is underwriting the market's insurance during the event you least want to be short, with unbounded loss.
Believing you can trade these in India. India VIX options do not exist in usable size, so a plan that depends on buying them is a plan that cannot be executed, and the honest substitute — index puts — behaves differently.

Professional usage

Volatility desks in the United States use VIX options as the cleanest listed instrument for trading the shape of the volatility-of-volatility surface and for hedging the convexity in a large short-volatility book. A dispersion or short-variance desk that is implicitly short a crash buys out-of-the-money VIX calls as tail insurance, because a VIX call and the index puts it is effectively short pay off in the same event, and the call caps the book's worst session. Market makers in VIX options quote off a fitted surface on the futures curve rather than on spot, and manage the residual VVIX exposure — the vega of their vega — as a first-class risk rather than an afterthought.

Because the modelling is unsettled, professionals treat the choice of VIX-option model as a position in itself: a desk that fits a mean-reverting SABR to each future disagrees, in the wings, with a desk that models the whole variance term structure, and the difference is real P&L in a shock. Risk managers, meanwhile, read the VIX call skew as a live gauge of how much the market is paying for tail protection, feeding it into stress scenarios rather than trusting a Gaussian model that cannot see the jump. In India, the same desks simply cannot run this playbook, and they hedge tail risk with NIFTY put spreads instead, accepting the direction and decay that entails.

Key takeaways

VIX options settle against the VIX future of matching expiry, not spot VIX, so a VIX call can expire worthless on a day spot VIX is high because the future never got there.
Their skew slopes upward — out-of-the-money calls are the bid wing — because a volatility-index call and an equity-index put pay off in the same disaster and are bought by the same hedgers.
The volatility index is mean-reverting and floored at zero, so lognormal models misprice VIX options, and their value depends on VVIX; there is no single agreed model, and practitioners disagree.
India has thin India VIX futures and effectively no India VIX options, so an Indian reader hedges tail volatility with NIFTY or BANKNIFTY puts instead — an imperfect substitute that carries direction and decay.
The high implied volatility of VIX calls is not free premium to sell; it is the price of insurance against the session in which a short position is largest and least closeable.

The whole difficulty of VIX options collapses into one correction: the underlying is the future, not the number on the screen. Once you settle a VIX call against the future that will actually pay it, the upward skew, the dependence on VVIX, and the failure of lognormal models all follow naturally, and the instrument stops looking paradoxical. The uncomfortable coda for an Indian reader is that none of this is yet tradable at home in any meaningful size — so the most useful thing this page can do is teach you the concept well enough to recognise that a NIFTY put, with all its imperfections, is the tool you actually have.

Frequently asked questions

What are VIX options?

VIX options are calls and puts written on a volatility index such as the VIX or India VIX. Unlike equity options they settle against the VIX future of matching expiry rather than against the spot index, which is the single fact that makes them behave differently from every equity option.

Why do VIX options settle against the future instead of spot VIX?

Because spot VIX is not a tradable asset — it is a calculation over other option prices, so there is nothing to deliver. The exchange settles against the VIX future, which is a real contract, and that future can sit well away from spot because it already prices mean reversion.

Can a VIX call expire worthless while spot VIX is high?

Yes, and it happens. If the future the option settles against finished below the strike, the call pays zero even if spot VIX was above the strike on the same afternoon. The future, not the spot number on your screen, decides the payoff.

Why do VIX options have a call skew instead of a put skew?

Because a volatility-index call and an equity-index put pay off in the same crash, so the same hedgers bid both. That demand lifts the VIX call wing the way it lifts the equity put wing, giving VIX options an upward skew — the mirror image of an equity chain.

What is VVIX and why does it matter for VIX options?

VVIX is the volatility of the volatility index — the expected size of moves in the fear gauge itself. A VIX option's price depends on it, so a long VIX call can lose money on a day the volatility index rises quietly, because VVIX fell even as VIX ticked up.

Why does Black–Scholes misprice VIX options?

Because Black–Scholes assumes the underlying is lognormal — able to drift anywhere and never floored. A volatility index is mean-reverting and bounded below by zero, so a lognormal model over-values high strikes and mishandles the floor, giving a price the market will not validate.

Can I trade India VIX options in India?

Not in any meaningful size. The NSE lists India VIX futures, but their liquidity has been thin, and there is effectively no India VIX options market. An Indian trader who wants a crash-volatility payoff usually buys NIFTY or BANKNIFTY index puts instead.

What is the closest Indian substitute for a VIX call?

A NIFTY or BANKNIFTY index put, or a put spread. It rises when the market falls and its own implied volatility spikes, which overlaps with what a VIX call pays. The catch is that a put carries direction and bleeds theta, so it is not a pure volatility instrument.

What is the underlying of a VIX option?

The VIX future of matching expiry, not spot VIX. Reading the option against spot is the most common error, because spot and the future diverge exactly during stress, which is when the mispricing costs the most.

Why is the VIX call wing so expensive?

Because it is the disaster wing that hedges a crash, and permanent hedging demand keeps it bid. You pay the most for out-of-the-money VIX calls precisely because everyone else wants the same tail protection at the same time.

Do VIX options move one-for-one with spot VIX?

No. They track the future they settle on, and the future moves less than spot because it prices mean reversion. A spot VIX spike of several points may move the relevant future far less, and the option follows the future.

Is selling VIX calls a way to collect rich premium?

Their implied volatility is high, but it is high because the calls pay off in a crash. Selling them means underwriting the market's insurance during the event a short position can least survive, with unbounded loss and gapping that no calm backtest reveals.

What is contango and backwardation in VIX futures?

Contango is a calm-market curve where each future is priced above spot as it reverts toward the long-run mean; backwardation is a stressed curve where futures sit below an elevated spot. VIX options settle on those futures, so the curve shape drives their payoffs.

Why do practitioners disagree about pricing VIX options?

Because there is no settled model. Some fit a mean-reverting SABR surface to each future, others model the entire variance term structure, and the two disagree in the wings. The choice of model is itself a position that produces real P&L in a shock.

Do VIX options help hedge an equity portfolio?

In markets where they trade, yes — out-of-the-money VIX calls pay off in the same crash that hurts equities, so they cap a book's worst session. In India the practical hedge is index puts, which achieve a similar aim with added direction and decay.

What does a positive risk reversal on VIX options mean?

It means the 25-delta call carries higher implied volatility than the 25-delta put — the call wing is bid. On an equity index the risk reversal is negative, so its sign is the fastest way to tell a volatility-index chain from an equity one.

Why can a VIX call rise slowly even when VIX jumps?

Because the future it settles on may move much less than spot, and because VVIX — the vol-of-vol — can fall even as VIX rises. Both effects mean the option follows something other than the headline number you are watching.

Are VIX options European or American style?

The main listed VIX options at CBOE are European-style and cash-settled against a special opening quotation of the future. This matters because it removes early-exercise noise and ties the payoff cleanly to the settlement of the future.

Why is the volatility index bounded below by zero?

Because it is a standard deviation, and a standard deviation cannot be negative. That floor is one reason lognormal models fail: they let the underlying approach zero smoothly in a way a mean-reverting, floored index does not.

Should a beginner trade VIX options?

For an Indian beginner the question is nearly moot, because there is no liquid India VIX options market to trade. Even where they exist, their settlement against the future, upward skew and dependence on VVIX make them an advanced instrument, not a starting point.

How is a VIX option different from a NIFTY put as a hedge?

A NIFTY put is an option on a tradable index with a downward skew and directional exposure; a VIX call is an option on a non-tradable, mean-reverting index with an upward skew. They pay off in the same crash but their pricing and behaviour differ in almost every other way.

Voice search & related questions

Natural-language questions people ask about vix options.

What are VIX options in plain English?

They are options on a fear gauge. Instead of betting on where a share goes, you bet on where the volatility index goes — but they pay off against the VIX future for that date, not against the number you see quoted, which trips up almost everyone at first.

Why did my VIX call expire worthless when VIX was high?

Because your call settled against the VIX future, and the future finished below your strike even though spot VIX was above it. The market believed the spike would fade, priced that into the future, and the future is what paid — or in this case did not.

Why are VIX calls more expensive than VIX puts?

Because a VIX call and an equity-index put are two tickets to the same crash, so the same hedgers buy both. That constant demand keeps the call wing bid, which is why the skew on VIX options points up while an equity chain points down.

Can I actually buy India VIX options?

Not really. India VIX futures exist but trade thinly, and there is no usable India VIX options market. If you want the payoff a VIX call would give, the tool you actually have is a NIFTY or BANKNIFTY put — with the direction and time decay that come with it.

Why does my VIX option barely move when VIX moves?

Because it tracks the future, not spot, and the future moves less than spot as it reverts toward the mean. On top of that, the option's value depends on VVIX, so a quiet rise in the volatility index need not lift your option much at all.

Is selling VIX calls easy money because they are so expensive?

It is the opposite of easy money. They are expensive because they pay in a crash, so selling them makes you the insurer during the one event you least want to be short, with losses that are uncapped and that gap open in a single session.

Do I price a VIX option like a normal option?

No — plain Black–Scholes in spot VIX gives a wrong number, because the index is mean-reverting and floored at zero. You have to model the future it settles on and account for vol-of-vol, and even the experts disagree on exactly how.

Sources & references

Last reviewed 10 July 2026. Educational content only — not investment advice.