Gerry Sullivan

VIX and Sectors: One-Day Snapshot

Comparing the IV on the SPX and the Sector SPDRs is a bit of apples and oranges. The SPX options are Euro exercise and the Sector SPDRs are American. The SPDRs (and SPY) trade on the Friday immediately preceeding expiration, the SPX only establishes
the settlement price at the open, but doesn't trade. That difference affects the IV calculations.

The SPX index erodes a bit every day when individual components go ex-dividend. The SPY and sector SPDRs actually own the underlying stocks and accrue dividends.

Even more interesting, the Sector SPDRs all go
ex dividend the Thursday before expiration. That creates distortions that are not properly accounted for in the IV formulas.

For instance, if the XLF is at $24.10 at the close on Thursday
June 19, a holder of XLF Jun 24 puts and XLF Jun 24 calls will
probably exercise the calls to capture the 20 cent dividend and then
exercise the put the next day to unload the stock.

This tendency is more visible in the puts and calls on SPY. The SPY will go ex-dividend for around 64 cents. Look at the puts and calls at the 138 strike. Compare to the 1380 strike puts and calls on the SPX.