vix options/futures

Guile · Oct 13, 2006

Is anybody using this product to hedge volatility risk? Are they a decent hedge? Appreciate any info on your experience trading these products.

Maverick74 · Oct 13, 2006

Quote from Guile:

Is anybody using this product to hedge volatility risk? Are they a decent hedge? Appreciate any info on your experience trading these products.

Great trading product if you understand how to model volatility.

Guile · Oct 13, 2006

Do you feel that they track equity index implied volatility fairly well?

Maverick74 · Oct 13, 2006

Quote from Guile:

Do you feel that they track equity index implied volatility fairly well?

Yes, they do. Goldman published a white paper that is on the cboe web site that gives the formula for how the vix is priced of the spx volatility.

momoneythansens · Oct 13, 2006

Quote from Guile:

Do you feel that they track equity index implied volatility fairly well?

VIX is derived from various SPX options - so yes, it tracks equity index implied vol well, if the equity index you are interested in is the SPX. VXN for NDX.

http://www.cboe.com/micro/vix/vixwhite.pdf

VIX Futures and Options, well that's a different matter:

http://www.cboe.com/micro/vix/introduction.aspx

Guile · Oct 13, 2006

Thanks for your info guys but I've already been to the exchange website. Have you guys used it in actual trading and if so, did you find it useful?

Maverick74 · Oct 13, 2006

Quote from Guile:

Thanks for your info guys but I've already been to the exchange website. Have you guys used it in actual trading and if so, did you find it useful?

Like I said, it's a great trading product esepcially if you trade index vol. In other words, you trade the vix with the spx.

Guile · Oct 13, 2006

Thanks Maverick. I'll try it out.

momoneythansens · Oct 13, 2006

Quote from Guile:

Thanks for your info guys but I've already been to the exchange website. Have you guys used it in actual trading and if so, did you find it useful?

No offence, but asking if VIX tracked equity index vol is a little non-sensical if you are familiar with the VIX calculations :eek: Oh well.

As for trading VIX options: I have dabbled but I do not find them useful just yet as my brain isn't as big as Maverick's. I believe it requires having a firm grasp of the pricing of VIX futures/forwards which has numerous subtleties and nuances that are non-transparent.

Hitherto, I have preferred to trade the strip vols directly if I'm speculating on that rather than trading a product that is twice removed.

Rallymode has come up with some interesting calendar trades for VIX options. He's floating around here somewhere...

Good luck.

MoMoney.

riskarb · Oct 13, 2006

Quote from Maverick74:

Great trading product if you understand how to model volatility.

Well then, that renders in unusable for 100% of this community. It's a perception trade -- there is nothing to mark the product, and nobody is doing arbitrage on these. Useful as nuke-insurance.