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 June 2019 went smoothly without any issues. The settlement value was within the range of spot index values (CRP1 and CRP2). The settlement process ran for over 5 minutes due to one SPY put strike not having a tight enough bid-asks pread and had to wait for an opening trade. During this time the SPY ETF was fluctuating within a 40-cent range.
We saw the first SPY option trade during this SPIKES settlement. The mid-price of National Best Bids and Offers (NBBOs) were used for most of the SPY options included in the final settlement calculation. A number of upside call strikes used the Cash Reference Price.
The Cash Reference Price (CRP) of near-the-money SPY options increased in value during the five-minute settlement period. Relative to the CRPs used in the SPIKES index calculation, the Settlement Reference Prices (SRPs) were broadly in line across all strike ranges.
Compare actual settlement options volume with variance swap formula projection.
There was a 1-lot trade 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 CRP values across all strike ranges.
Strike by strike comparison of SRP and the corresponding CRPs.
The near-the-money CRPs (275-300 strikes) moved as much as 13 cents during the settlement process, due to rising implied volatility levels and movements in the SPY spot price. Most of the SRPs fell within the respective CRP ranges.
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 between the two CRPs. The difference between the two CRPs was mostly due to rising at-the-money volatility during the settlement process. The SRPs were slightly higher than the CRPs in the put tail (i.e. PUT2 strike range).
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 PUT2 range led to 2 additional strikes being included in the settlement calculation than the CRPs would imply.