How to trade volatility?

[ssp729]

Hello everyone. I am a newbie trader, and i would like to know how i can trade options if i can forecast the volatility index (VIX).

Is it better to trade straight VIX Call or Put options?

Thank you.

 

[Robert Morse]

VIX options are really not for new traders, but sure, if approved for option level 3 you can buy options and spreads.

 

[ssp729]

Thanks! In your opinion, is it better to trade options or futures in that case?

 

[Robert Morse]

Thanks! In your opinion, is it better to trade options or futures in that case?

I do not have enough information on your expectations and risk tolerance to answer that. They are also different accounts and asset classes. VX future’s are traded on the CFE in a future’s account and VIX options are traded on the CBOE in a securities account with no cross margin. They are both cash settled.

 

[lindq]

I do not have enough information on your expectations and risk tolerance to answer that.

Good answer. Nice to know there are still a couple adults in the room.

 

[ssp729]

I would like to start small, maybe $1000. Risk Tolerance 50% of DD. In february, VIX Spiked, this hedge fund made millions: https://www.bloomberg.com/news/arti...8-600-profit-to-a-tiny-hedge-fund-in-colorado
Maybe this cannot be replicated, right?

 

[destriero]

I would like to start small, maybe $1000. Risk Tolerance 50% of DD. In february, VIX Spiked, this hedge fund made millions: https://www.bloomberg.com/news/arti...8-600-profit-to-a-tiny-hedge-fund-in-colorado
Maybe this cannot be replicated, right?

Sure, if the index tanks VIX will rise. It can be replicated, but you're essentially buying swaptions. Can you make millions? No. The SPX skew is reversed in VIX ops and the swaption aspect results in vol-figures on upside strikes of 10x SPX vola.

ATM SPX volatility is trading 9% (ATM combo). VIX is 3.25 handles above ATM (12.20) due to the wing-valuation. VIX is floored to something around 10. Knowing that; there is many ways to structure VIX upside/SPX downside with very little risk.

Upside call vola on VIX? >100% annualized so trade spreads.

 

[oldmonk]

I would like to start small, maybe $1000. Risk Tolerance 50% of DD. In february, VIX Spiked, this hedge fund made millions: https://www.bloomberg.com/news/arti...8-600-profit-to-a-tiny-hedge-fund-in-colorado
Maybe this cannot be replicated, right?

This tiny hedge fund made 8600% buying SVXY deep OTM puts (these were much cheaper than VIX calls on a relative basis). It's unlikely that a similar event will occur again with SVXY, since it's now been deleveraged, so I don't think it can be replicated.

 

[ssp729]

Thanks everyone... This is what i thought. It´s better to have a trading system, with entries, stops and profit target.

 

[newwurldmn]

Thanks everyone... This is what i thought. It´s better to have a trading system, with entries, stops and profit target.

As opposed to throwing darts at a board?