Choosing Vix options expiry for election trades?

[Kid_Charlemagne]

Hi all,

I’m new to Vix options but wanted to make some small test election trades and wanted some advice. I know they are priced off the futures (I know not technically) and that they are European style and price off options 30 days into the future so choosing the correct expiration date is tricky. If I want to bet on both higher uncertainty on the week before election, Election Day, and also higher uncertainty a week AFTER the election due to difficulties in vote counting, which expiries would best express that? Thanks in advance.

 

[lindq]

Hi all,

I’m new to Vix options but wanted to make some small test election trades and wanted some advice. I know they are priced off the futures (I know not technically) and that they are European style and price off options 30 days into the future so choosing the correct expiration date is tricky. If I want to bet on both higher uncertainty on the week before election, Election Day, and also higher uncertainty a week AFTER the election due to difficulties in vote counting, which expiries would best express that? Thanks in advance.

You are assuming that increased vol will not already be priced into the options around election day? And you are assuming that your option price will not degrade simply because of theta?

Both assumptions are wrong. A probable market moving event that is so easily forecast is already baked into pricing models. It would be tough for you to make a profit on this one.

The smart trade may in fact be on the other side, which could involve long puts at the point the VIX pops. I'm not recommending this, but pointing out that smart money typically doesn't follow the obvious.

 

[Girija]

Since market has rallied it is normal for vix to rally along with it. it appears that irrational call volume has skewed true picture on volatility.spot vix may very well go down in the next few weeks. I am thinking Election day is too far out for this to work now. Perhaps you can wait and see and near election day if and when vix pops, short the futures. it is avlbl in mini version too with 1/10th margin. Some brokers dont allow all traders trade options on vix.
If the idea is to make money, shorting vix after its pop is less risky than playing long with options. You really dont learn anything by taking a riskier trade and losing.

 

[Kid_Charlemagne]

You are assuming that increased vol will not already be priced into the options around election day? And you are assuming that your option price will not degrade simply because of theta?

Both assumptions are wrong. A probable market moving event that is so easily forecast is already baked into pricing models. It would be tough for you to make a profit on this one.

The smart trade may in fact be on the other side, which could involve long puts at the point the VIX pops. I'm not recommending this, but pointing out that smart money typically doesn't follow the obvious.

Yea I’m well aware of but the rumor sell the fact thank you very much. I’m just not aware of some of the details of vix option pricing. When I look at the curve, I think vol comes down too fast after the election. Of course Election Day vol is priced in, but I don’t think the extension of uncertainty post Election Day is sufficiently priced. What would be best expiry to bet on 2 weeks post election?