VIX Options Explained - Hedging With Volatility

Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026

VIX options are cash-settled, European-style options on the Cboe Volatility Index (VIX), a measure of the stock market's expected volatility over the next 30 days, and they are priced off the VIX futures for the same expiration rather than off the VIX number you see quoted.

That last point catches many first-time buyers. A VIX call can gain far less than a jump in the VIX suggests, or lose value while the VIX barely moves, because what matters is where the market expects the VIX to be on the option's own expiration date. This lesson explains what the VIX measures, how VIX options are priced and settled, and how a VIX call compares with an index put as protection against a crash.

What does the VIX measure?

The VIX is calculated by Cboe from the prices of S&P 500 Index (SPX) options. Per Cboe's VIX methodology, it uses SPX options with more than 23 and fewer than 37 days to expiration, weighted to give a 30-day measure of the S&P 500's expected volatility. When SPX options get more expensive, because investors expect bigger moves, the VIX rises.

Historically, the VIX has tended to jump when stocks fall sharply, which is why it is often called a fear gauge and why VIX options are used as a hedge. Cboe describes VIX options as a way to hedge "portfolio volatility risk distinct from market price risk" on its VIX options page. The relationship is a tendency, not a rule: the VIX can rise without a large fall in stocks, and stocks can fall without a large spike in the VIX.

Why do VIX options price off VIX futures and not spot VIX?

You cannot buy the VIX itself. It is a calculated number, and the SPX options behind it roll to new expirations every week to keep its 30-day horizon, per the same methodology, so there is no fixed basket anyone can buy and hold. What you can trade are VIX futures and VIX options, which settle to the VIX's value on a future date.

Because that future value is unknown, VIX options are priced on the market's estimate of it: the forward value of the VIX for that expiration, which the VIX future for the same date reflects. In practice, that future is the reference price for a VIX option, not the spot VIX.

VIX futures can trade above or below the spot VIX, and the gap changes with market conditions. When the future is above the spot VIX, a VIX call is priced as if the VIX were already higher than today's quote. If the spot VIX then stays low, the future converges toward it as expiration approaches, and the call loses value even though the VIX number barely moved. Check the future for your expiration, not just the spot quote, before buying.

How do VIX options settle?

Per Cboe's VIX options contract specifications:

• Exercise style: European. VIX options generally can be exercised only on their expiration date.
• Settlement: cash. The holder of an in-the-money option receives the difference between the settlement value and the strike, multiplied by $100, shortly after expiration.
• Settlement value: not the closing VIX. It is a Special Opening Quotation (SOQ) of the VIX, calculated from the opening prices of SPX options on the morning of expiration, which is usually a Wednesday.

Because trading in expiring VIX options ends the business day before expiration, the final value is not known until the next morning's opening quotation, and it can differ from the VIX's last close.

Timing matters as much as size. If the VIX spikes to 40 two weeks after you buy and falls back to 20 by expiration, a call held to settlement expires worthless. To capture a spike, a VIX call holder generally has to sell the call while the spike lasts.

Is a VIX call or an index put the better hedge?

They protect against related but different things:

• An index put pays off on the price of the index or fund, which is what your portfolio loses. With beta, you can size it with a formula, as in How to Hedge a Portfolio With Index Puts.
• A VIX call pays off on expected volatility. A crash that is fast and frightening tends to lift the VIX sharply; a slow, steady decline may lift it far less. There is no simple formula for how many VIX calls offset a given portfolio loss.
• Both cost money in quiet markets. Like a put, a VIX call usually expires worthless, and its price also drifts with the VIX futures, as described above.

For these reasons, many hedgers who use VIX calls treat them as a complement to index puts, not a replacement.

Exchange-traded products that hold VIX futures are a different thing again: they are not VIX options, their returns can differ widely from moves in the VIX itself over time, and they are left out of this lesson. Read a product's prospectus before trading one.