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Trading the VIX future
- Thread starter Fierze
- Start date
Thanks for your answers guys, but I think we got away from the original question;
Does the cost of rolling over VIX futures (and the fact that they don't seem to move as much as the VIX index itself) eat away all chances of having a profitable trading strategy if you want to hold a position, say, 2-3 months??
I just want to trade volatility in an instrument that resembles the VIX index itself as closely as possible, how can I do this? It looks like futures are the closest thing.
Or to put it this way; What are the main problems/obstacles with trading VIX futures?
Does the cost of rolling over VIX futures (and the fact that they don't seem to move as much as the VIX index itself) eat away all chances of having a profitable trading strategy if you want to hold a position, say, 2-3 months??
I just want to trade volatility in an instrument that resembles the VIX index itself as closely as possible, how can I do this? It looks like futures are the closest thing.
Or to put it this way; What are the main problems/obstacles with trading VIX futures?
Quote from lachie74:
The futures are priced in 0.05 increments. The Index is not a tradable instrument, it's just an Index.
There is also a mini contract 1/10 the size of the big one.
http://cfe.cboe.com/Products/Products_VIX.aspx
http://cfe.cboe.com/DelayedQuote/SSFQuote.aspx?ticker=VMX/K1
So there's a mini VIX that is $5 per tick, is currently trading at 16.70, and moves in 0.05 minimum increments, so it's total value is $1,670 (16.70 / 0.05 * $5 = $1,670) and it can never go to zero by definition?
What's the catch? Is there shit volume and horrible spreads (like the micro forex futures)?
It says the current open interest is 86 for the May contract. I literally cannot believe that it's not like a million times that amount. This sounds the perfect trading instrument.
Quote from 1a2b3cppp:
http://cfe.cboe.com/DelayedQuote/SSFQuote.aspx?ticker=VMX/K1
So there's a mini VIX that is $5 per tick, is currently trading at 16.70, and moves in 0.05 minimum increments, so it's total value is $1,670 (16.70 / 0.05 * $5 = $1,670) and it can never go to zero by definition?
What's the catch? Is there shit volume and horrible spreads (like the micro forex futures)?
It says the current open interest is 86 for the May contract. I literally cannot believe that it's not like a million times that amount. This sounds the perfect trading instrument.
Well, my whole point of this thread is to try and find out what the biggest catch is, with either the big or small VIX contract. No luck so far...
I do know that the small contract should be a worse trading instrument since the spreads are huge and volumes are crap, so I would personally just try and go for one contract of the larger VIX future.
However, if there is some really big catch I don't want to get ripped off trying to trade it profitably.
Fierze,
The VIX is a complicated product. Major banks have many quants trying to understand how to actually price them based off of the listed surfaces.
My experience trading the VIX:
The roll cost is extreme, but given the VIX's whippiness you can go from a steep term structure to an inverted one in 1 day. Secondly, as you approach expiry the volatility of the VIX increases a lot.
If you really want to understand the VIX, first understand volatility trading. the VIX is volatility trading 401 (the graduate level course).
Most people don't truly understand the VIX even though they think they do. I am probably one of these people.
The VIX is a complicated product. Major banks have many quants trying to understand how to actually price them based off of the listed surfaces.
My experience trading the VIX:
The roll cost is extreme, but given the VIX's whippiness you can go from a steep term structure to an inverted one in 1 day. Secondly, as you approach expiry the volatility of the VIX increases a lot.
If you really want to understand the VIX, first understand volatility trading. the VIX is volatility trading 401 (the graduate level course).
Most people don't truly understand the VIX even though they think they do. I am probably one of these people.
This is like the n-th thread that has popped up on VIX futures with the same questions. First of all, a search of ET threads would point you to previously discussed threads where people know what they are talking about explain the VIX futures.
Second, there is a ton of informtion on VIX futures at the website where they are traded which explains, settlement and how they are priced.
Third, the idea that VIX never goes to $0 makes it unique. ES theoretically cannot go to $0 but you can still lose your ass trading it if you do not know what you are doing as someone pointed out, they do expire and can expire at a value a lot lower than what you bought it for or higher than what you shorted it at.
Fourth, people continue to make the mistake that VIX futures track the VIX index perfectly. VIX can increase and the futures will not move at all since it is future expected value of VIX at expiration not necessarily the current spot value. VIX futures can trade at a discount to spot VIX. Lot of ways to lose money if you do not understand the term structure of volatility over time just like bonds have interest rate structures.
Second, there is a ton of informtion on VIX futures at the website where they are traded which explains, settlement and how they are priced.
Third, the idea that VIX never goes to $0 makes it unique. ES theoretically cannot go to $0 but you can still lose your ass trading it if you do not know what you are doing as someone pointed out, they do expire and can expire at a value a lot lower than what you bought it for or higher than what you shorted it at.
Fourth, people continue to make the mistake that VIX futures track the VIX index perfectly. VIX can increase and the futures will not move at all since it is future expected value of VIX at expiration not necessarily the current spot value. VIX futures can trade at a discount to spot VIX. Lot of ways to lose money if you do not understand the term structure of volatility over time just like bonds have interest rate structures.