VIX is where the biggest premium over parity lives.

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Premium over parity exists in many places

What is price over parity premium?  If I explain it to you all I will do is become one move Value Risk Premium blog.  To be honest I cannot do that.  Price of parity is kind of a misnomer because pros just look at the OTM anyway.  There is no sense spending time with a deep in the money option if you are just looking to trade “the juice” in listed options.  VIX is a bit different because the future also has premium over the underlying cash price most of the time.  That gives us the dreaded double decay of VIX.

Massive Premium over Parity in VIX Cboe Livevol

Is VIX double decay twice the premium over parity?

At this rate VIX November futures are 2.73 over parity and probably the highest over parity for 2019 for those that watch such things.  We actually might see a higher premium over parity in this cycle because of the great unknown of the China Deal.  Things sound better but we have heard that before.  The big issue for VIX call buyers is the underlying is 17.30 and not 14.57.  Even a 2 handle move in VIX will get absorbed causing sadness for VIX call buyers.  VIX calls can decay, as well as the futures creating a double whammy for VIX call buyers.  Right now as VIX dives, future traders are not willing sellers, they are the opposite.

VIX future traders are pricing a pop for the Nov cycle

The HIGHER premium over parity is holding the big tech earnings, China and possibly the repo madness out there.  Bank earnings this week will shed some light on the earnings picture and might knock out some of that VIX premium over parity.  For a product like VXX, this cycle could be a crusher sending it down to $20 if all the worries do not come to pass.  Nov cycle puts in VXX look reasonable.

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Disclosure: VXX, VIX, SPY positions

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