Thread by @SqueezeMetrics

It's been a while since we've posted a scandalous question, so here's a doozy.

Regarding VIX and the front-month VIX future (VX1), which statement is more accurate?

So, this was a really bad poll, and here's why:

There are going to be two types of respondents, (1) those who implicitly believe that "convergence" refers to TIME, and (2) those who implicitly believe that "convergence" refers to PRICE.

If you think we're talking about TIME, then this devolves quickly into a philosophical debate about whether spot ("now") actually moves through time toward the forward contract, or whether forward contracts move toward the present.

Mkay.

If you think we're talking about PRICE, though, you'll want to know which, between VIX and VX1, is the "primary" market. Which is actually independent of the other, or empirically, which one "leads" the other?

We think this is the "right" question.

And the "right" answer?

VIX converges on VX1.

Why?

1. Because VX1 doesn't actually *need* VIX.

https://twitter.com/Star47551088/status/1306394426730786816

2. Because VX1 empirically "leads" spot.

https://twitter.com/AlgoSnafu/status/1306403955216392192

3. And because VX1 is where the money goes.

https://twitter.com/Johnathanblind1/status/1306409288215277569

And this would be the definitive answer, if it weren't for one small problem:

VIX futures, in their final, miserable moment, settle to the Special Opening Quotation (SOQ), which is derived exclusively from SPX option prices.

https://twitter.com/quantian1/status/1306430729782538240

But you're not holding VX1 to settlement, are you? Therefore, 60% of you are irredeemably wrong.

VIX converges on VX1.

Disperse.