VIX Options - Do you prefer to trade VXX or VIX, and why?

T

Tall Mike

I was looking into selling spreads on VIX or VXX.

I know fundamentally they are different though.

For those who trade vol, which instrument do you prefer and why?

Thanks!
 
Tall Mike said:
I was looking into selling spreads on VIX or VXX.

I know fundamentally they are different though.

For those who trade vol, which instrument do you prefer and why?

Thanks!
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VXX by far. Much higher volume, much higher liquidity hence much tighter spread on both the underlying and its options. Much easier to trade as it's an ETN.
 
TheDawn said:
VXX by far. Much higher volume, much higher liquidity hence much tighter spread on both the underlying and its options. Much easier to trade as it's an ETN.
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Thanks for the reply.

Is VXX the only underlying you trade?
 
vix, direct and simple. vxx is the term structure of vix, more a second derivative. In another word, vix measures 30 day’s movements of spx. vxx measures 30 day changes of vix.
 
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VXX options are not index options. They function like equity options. The underlying is not an index, but rather an exchange traded note that is tied to VIX futures. That's way too kinky for me LOL

VXX options have American style exercise, with a very real possibility of early assignment. And they require delivery of the underlying ETN.

I don't want to mess with those variables LOL

If you sell a VXX credit spread, and at expiration, the short leg is in the money and the long leg is out of the money, you have to buy in the short leg, or you will get assigned and be short the ETN overnight with no hedge.

VIX is cash settled, with European expiration. No underlying security to deliver, and no risk of early assignment.

Much cleaner.
 
... of course, I used to think that VIX options were too kinky and esoteric, too.

Now I sell naked VIX calls LOL


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Many people do not really understand what VIX is measuring, and some who do think it is not measuring it very well
 
BMK said:
VXX options are not index options. They function like equity options. The underlying is not an index, but rather an exchange traded note that is tied to VIX futures. That's way too kinky for me LOL

VXX options have American style exercise, with a very real possibility of early assignment. And they require delivery of the underlying ETN.

I don't want to mess with those variables LOL

If you sell a VXX credit spread, and at expiration, the short leg is in the money and the long leg is out of the money, you have to buy in the short leg, or you will get assigned and be short the ETN overnight with no hedge.

VIX is cash settled, with European expiration. No underlying security to deliver, and no risk of early assignment.

Much cleaner.
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I trade the VXX and use VXX options to hedge though.
 
Both - the VIX option matrix has much crisper pricing. VXX options are machine priced and can get sloppy. If you have good technology and ample capital there are frequent fat arb. Opportunities, but they disappear quickly and are capital intensive.
As for spread the markets in the options are six of one half dozen of the other. If American options trouble you keep in mind that American premiums are richer. If I'm spread one of two I would more considered about skew - be cautious about overpaying for the insurance.
 
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