Trading the VIX future

Some brokers have a continuous ES contract, for example. To the best of my knowledge, it's the same as a regular ES contract, they just auto-roll it over for you.

I assumed the "continuous" aspect was a function of the broker rather than a different contract.

So I would assume that since continuous ES contracts exist with certain brokers, that continuous VIX contracts must also exist with certain brokers.
 
So ^VIX was at 90 or so in Oct-Nov of 2008. Today it is at 14.85.

VXX didnt' exist in Nov of 08, but it was around 475 in early 2009 when it was created. Today it is at 23.43.

Hardly correlated.

VYX went from 115 in early 2009 to 51.39 today.

So yeah, these are loosely correlated at best and I don't erally see how a trading strategy for ^VIX could be applied to VXX or VXZ
 

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The fallacy is that you cannot trade the VIX. You can only synthetically replicate it theoretically. In reality bid offer will kill you.

There is an ETN that tries to approximate the vix with listed options and futures, etc, but i think it's largely just made up math based on regressions. When the VIX really moves who knows how it will perform.

There is no way to trade the actual VIX. Futures are your closest approximation but as you pointed out it has some nuances that make it tricky.
 
There is no other way to trade the VIX.

Futures,
Options,
ETNs.

They all have their nuances and advantages and disadvantages.

I have backtested some strategies that are good with the ETNs; others with the options and futures.

The roll in the VIX is tricky. You are talking about a product that is a derivative of a basket of derivatives. (CDOsquared anyone). And then all these products are derivatives of that derivative.

People think it's some vanilla obvious product that should be perfectly tradable, but if you read the white paper you would know it's not necessarily what it seems.

Even experienced options people don't fully understand the nature of this beast.
 
All I'm saying is if there's a continuous VIX contract anywhere, that's pretty much the perfect trading instrument. Just looking at the charts, the actual VIX looks doable (assuming it's continuous) but the VXX and VXZ or whatever don't. They don't follow the VIX closely enough.
 
VXX and VXZ haven't been around long enough to be tested in a bear market. They both were conceived basically a month before the market bottomed in March of '09.

So while they surely will not capture the full moves of a rising VIX, there ought to be good enough moves over the course of any significant and extended market decline to make something along the way.
 
Quote from 1a2b3cppp:

All I'm saying is if there's a continuous VIX contract anywhere, that's pretty much the perfect trading instrument. Just looking at the charts, the actual VIX looks doable (assuming it's continuous) but the VXX and VXZ or whatever don't. They don't follow the VIX closely enough.
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The charts don't matter. It's the calculation method that does. VXX and VXZ are the closest to the continious VIX contract.

As you are not inclined to do the research yourself here is the Yahoo! description of the VXX:

The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.

The product doesn't approximate the VIX because it's not intending to. It's approximating the futures which calibrate to a different "volatility" than the VIX.

The VIX is essentially a basket of front 2 month listed SPX options and every day you sell about 1/20th of the front month and buy 1/20th of the second month. Unless you are willing to trade 1000 strikes everyday you CANNOT (I REPEAT CANNOT) replicate the VIX. Everything else is an approximation.

The futures calibrate to different months (like the 3 and 4 month) or such.

Based on the questions you have asked in the options forum, you probably don't understand how implied volatility works. If that information was options trading 201, then the VIX is options trading 501 (the graduate level course).

If you are interested in more, read the white paper on the VIX on the CBOE website.
 
Quote from newwurldmn:

The charts don't matter. It's the calculation method that does. VXX and VXZ are the closest to the continious VIX contract.

As you are not inclined to do the research yourself here is the Yahoo! description of the VXX:

The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.

The product doesn't approximate the VIX because it's not intending to. It's approximating the futures which calibrate to a different "volatility" than the VIX.

The VIX is essentially a basket of front 2 month listed SPX options and every day you sell about 1/20th of the front month and buy 1/20th of the second month. Unless you are willing to trade 1000 strikes everyday you CANNOT (I REPEAT CANNOT) replicate the VIX. Everything else is an approximation.

The futures calibrate to different months (like the 3 and 4 month) or such.

Based on the questions you have asked in the options forum, you probably don't understand how implied volatility works. If that information was options trading 201, then the VIX is options trading 501 (the graduate level course).

If you are interested in more, read the white paper on the VIX on the CBOE website.
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I'm more interested in the fact that ^VIX seems to oscillate for the most part between 10 and 40 and cannot go to 0.

Even though there are some 1-2 year periods where it stays relatively flat, the insane payoff that comes from an instrument with this price profile is well worth it.
 

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