SRP: Settlement Reference Price for each SPY option, used in final SPKCS calculation.
CRP1: Cash Reference Price (used in SPIKES index calculation) at time of SRP, (unique time for each SPY strike).
CRP2: Cash Reference Price (used in SPIKES index calculation) at settlement time, (same time for all SPY strikes).
The SPIKES settlement auction for May 2019 went smoothly without any issues. The settlement value was slightly higher than the spot index values (CRP1 and CRP2). The settlement process ran for over 2 minutes due to one SPY call strike not having a tight enough NBBO bid-ask spread. During this time the SPY ETF had rallied by ~30 cents.
There were no SPY option trades during this SPIKES settlement. The mid-price of National Best Bids and Offers (NBBOs) were used for all the SPY options included in the final settlement calculation.
The Cash Reference Price (CRP) of near-the-money SPY options experienced considerable change in value as the underlying SPY spot price moved higher during the two-and-a-half-minute settlement period. Relative to the CRPs used in the SPIKES index calculation, the Settlement Reference Prices (SRPs) were slightly higher (by 0.5-1c) across all strike ranges.
Compare actual settlement options volume with variance swap formula projection.
No SPY options were traded during this SPIKES settlement auction.
A visualisation of the settlement option prices and their equivalents in the SPIKES index calculation.
The SRPs were broadly in line with the CRP1 values. Almost all of them were snapped shortly after 9:30am. They are considerably different to the CRP2 values, which lagged by some two and a half minutes.
Strike by strike comparison of SRP and the corresponding CRPs.
The near-the-money CRPs (260-295 strikes) moved as much as 15 cents during the settlement process, due to movements in the SPY spot price. The SRPs were often 0.5c higher than the corresponding CRPs in the far-out-of-the-money puts (230-260 strikes); a few cents higher in the 260-285 range; slightly lower than the CRPs in the 285-300 range; and 0.5 cents higher in the 305-310 range.
Replace some or all of the SRPs with the CRPs in the settlement calculation and see how different the results are.
The SPKCS settlement value was slightly higher than the CRP values. It is higher than CRP1 due to slightly higher SRP values across all strike ranges. CRP2 is less relevant here as it occurred two and a half minutes after all but one SRP and CRP1 values were determined. During this time the SPY ETF had moved up, as a result a lower CRP2 value was expected.
Replace some or all of the SRPs with the CRPs and see how many SPY options are used in the settlement calculation.
Higher SRP values in the CALL and PUT2 ranges led to 1-2 additional strikes on either side being included in the settlement calculation than the CRPs would imply.