How liquid are VIX options?
- Thread starter darkshogun
- Start date
Mav is right (there, I said it), you need to do a little basic research on how VIX futures and VIX options work first. There is a very nice primer about VIX futures and options from one of the dealers, I will try to post it here tomorrow.
This what you're referencing?
I was going to post the attachment, but the file size is too large - this link should work though:
http://www.scribd.com/doc/82441012/MS-VIX-Futs-Opts-Primer
hedge ratio on the curve comes from variance/covariance process, which is a second moment effect. i feel hedge ratio is rather stable.
what RM was talking about is the mean process, ie first moment. it is the directional view on a hedged basis. this can vary rather quickly depending on mkt sentiment.
the mean effect is so tiny, that assuming zero mean does not really affect the identification of 2nd order moment that much.
so there is nothing wrong with a 2-step process.
njrookie
what RM was talking about is the mean process, ie first moment. it is the directional view on a hedged basis. this can vary rather quickly depending on mkt sentiment.
the mean effect is so tiny, that assuming zero mean does not really affect the identification of 2nd order moment that much.
so there is nothing wrong with a 2-step process.
njrookie
As long as you can stomach the inconsistencies, no. But just understand that certainty in the VIX space is an illusion. All models are simply a best guess. The instant a dislocation occurs, there's new data to contend with, making the predicted p/l from the moment prior no longer relevant. Risk graphs are not useless, but at best they're simply guides as to what might happen.
I'm trading VIX calendars on a regular basis, and most of the time, I'm filled 2-3 cents from the mid on the calendar. The interesting thing is that IB allows a penny increment on the spreads but only minimum of 5 cents for the calendar. Which means that you have a good chance to get a better fill on the calendar than on single options, although in some cases I did leg in/out and was able to get filled on the mid on a single options.
Yes, the CBOE requires a min. of .05 in the individual VIX options (.10 on options over 3.00) but they will allow you to trade any spread in .01 increments. The VIX futures are the same. .05 increments but you can trade the futures time spread in pennies.
If you're doing a SPY/IWM butterfly you're much better off embedding something directly within the spread to correct your Greeks. Either front month or back depending on how far out you put them on. As far as analytics are concerned I think everyone would agree that using two different platforms/inputs is the way to go. Everyone talks about how rudimentary IB's graphs are but I'm only interested in the actual numbers and they're always pretty close to TOS. I trade straddles on ES futures that I'll sometimes turn into a butterfly to correct any Delta or Vol risk since VIX futures can get pretty whacked out sometimes due to some "event" which may have nothing to do with what SPY/SPX/ES are doing. I really think all of the VIX ETN's & ETF's are starting to influence the VIX futures in some strange ways over the past 6 months so hedging with them is, at best, a guess.