I got this question yesterday from an options trading investor:

“Are the April VIX futures going to get closer to the 29.40 current VIX price as the week goes on? I see April is priced at 25ish, while the front month is 29.40. How does this usually play out? I ended up rolling some of my Mar position to Apr yesterday. Just trying to figure out how to price it. Traditionally, I’ve stayed away from trading the VIX options, but it was too tempting the last few weeks to not nibble.”

I responded:

“This is more the exception than the rule. Basically when the CBOE Volatility Index (CBOE: VIX) pops, the futures initially treat it as a blip and don’t fully track it. More often than not, the futures are *right* and VIX itself eventually drifts back. There’s some exceptions though (cough … 2008 … cough) where you’d go broke waiting for that mean reversion. You also get moves like last spring when VIX popped to the 40’s, even though it was brief.”

It usually does not resolve quite as quickly as it did today. But I strongly doubt we look back and see yesterday’s VIX breakout as a 1-day wonder. We likely see another spike. Gun to head I would guess we make a higher high, but not a scare like last May. We’ll see.

I can certainly justify the questioner’s hesitancy in trading VIX options. To say they confuse is an understatement. Thanks to yesterday’s big discount, we see most April calls trade under parity to VIX itself. For example, VIX April 25 Calls closed yesterday at $3.30 with VIX closing at $29.40. That can happen because they did not really close under parity. Always remember that these are options on VIX futures, NOT VIX itself. And April VIX futures closed at $24.90. So April 25’s carry about a 50 delta. What’s more, VIX options are European and cash settled, which means you can’t exercise them early anyway.

Follow Adam Warner on Twitter @agwarner.