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 November 2020 was conducted smoothly without any issues. The settlement value was modestly higher than the spot index values (CRP1 and CRP2).
There were four SPY option trades during this SPIKES settlement. The mid-price of National Best Bids and Offers (NBBOs) were used for all the other SPY options included in the final settlement calculation.
Relative to the Cash Reference Prices (CRPs) used in the SPIKES index calculation, the Settlement Reference Prices (SRPs) were slightly higher over the far-out-of-the-money strike ranges (PUT2 and CALL); and broadly in line elsewhere.
Compare actual settlement options volume with variance swap formula projection.
There were four SPY option trades during this SPIKES settlement auction for a total of 413 lots. The bulk of the volume was accounted for by two near-the-money call strikes (200 lots each).
A visualisation of the settlement option prices and their equivalents in the SPIKES index calculation.
The Settlement Reference Prices (SRPs) were broadly in line with the CRP values, except in the tails where the SRPs stay above 5c while the CRPs drop towards 0c.
Strike by strike comparison of SRP and the corresponding CRPs.
The CRP range was mostly 0-2c wide across the entire strike range. The SRPs were mostly within 2c compared to the corresponding CRP values across the ATM and PUT1 strike ranges. The SRPs for far-out-of-the-money options were up to 6c higher than the corresponding CRPs in many of the upside calls, and up to 4c higher in the tail puts.
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 modestly higher than the CRP1 and CRP2 values due to higher prices in the PUT2 and CALL strike ranges. They accounted for 0.32 and 0.12 of the difference respectively.
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 and CALL strike ranges respectively led to 29 and 14 additional strikes being included in the settlement calculation than the CRPs would imply.