There are no options on the cash index, and it's not really a cash index, it is basically a theoretical value to give people an approximation of the expected 30 day IV in the SPX options. The options you are quoting are for the August VIX futures contract which, as I said, is trading 20.17. Oversimplified: Underlying= Strike+Call-Put; 20.17=25+1.05-5.9. VIX cash and futures converge at expiration, but you have to be careful because the market makers have the ability to skew the final expiration value in the direction they want. Also note that calendars do work as you would expect, each futures month is independent.
Short the VIX
- Thread starter pumpanddumper
- Start date
The problem with VIX options is the lack of transparency for the retail trader. VIX options are priced to VBI, which are derived from OTC var-swaps. The swap > VBI > VIX option marks represent the implicit vol-forecast. Selling the current AIV requires trading the strip and dynamic hedging. The VIX 3-way is traded against the VBI, as would be expected. Sell atm SPX straddles/long VBI if you're interested in selling spot vols. In the end, we don't really need to know what's in the hot dog [or want to] to enjoy it...
The main problem I was alluding too is that many beginners think the VIX options track the actual VIX like SPX options track the SPX cash index. I wish that were true and it would be easier for the retailer to use them. I mentioned that as a complaint to someone I know on the board of the CBOE but naturally it will not change as I am a nobody lol. Volume is picking up but I do not think the retailers will really get into the VIX options just yet.
Quote from rallymode:
I tried but my broker says i can't short a cash index.
Any ideas?
Sell time spreads (buy August, sell October) on ES. OR Sell ATM August calls, buy an equal number of OTM August calls, and then buy enough futures to take care of the delta.
As for me, I am doing neither. The VIX is at a 52 week high, and it could easily go higher before it goes down.
On second thought, I'd would probably prefer to sell LONGER term atm calls, not August ones, something like the Novembers. Buying the near term (of Septembers) OTM calls would help neutralize the gamma, so I would not change that.
If you really want to sell the VIX, I'd pull up an intraday chart of the VIX and time the sell on a fifteen minute or sixty minute chart when you see a reversal in which the close is lower than the two previous closes. And be careful. Selling volatility is not a business for the faint of heart.
Synic, that's assuming the ATMs are ticking at 2400bps which they arent (they are usually in line with the vbi's).
My q was rhetorical. Meaning that shorting the vix at 24 wasn't possible(vix basket replication at mid price fills) for most due to reasons already outlined in this thread.
LOL
