Forget modeling volatility, its nontrivial just trading these outright or in conjunction with the S&P. Besides, seems to me if you have volatility figured out ( I don't ) that you would focus on some other avenue of success then the VIX. i.e selling volatility or buying pockets of it here and there.
vix options/futures
- Thread starter Guile
- Start date
Well, that might be true, but this is ET, almost everything on this site is unusable. LOL. There is a lot of arb activity in this product trading these against OTC variance swaps. I don't find them useful as nuke insurance since they have no gamma. Vols are only useful for the event, not during or after.
All I'll say is we have found some pretty unique positions that can be created using the vix and spx in tandem. No, we are not trying to arb volatility.
You noticed those? I thought everyone on ET tuned to a different station as soon as they read the words VIX options.
The only thing i see in that product is being long/short vega when the nice tenor skews present themselves. Yes, trading the volatility of the SPX volatility :eek: Unfortunately, i havent been able to see anything beyond that, so maybe Mav can clue us in on how he is trading it. Mav, throw us retail folks a bone, will ya?
I noticed the current front month VIX futures (Oct 2006) dropped off a cliff over the past few days. VIX has declined, but not nearly as much as the futures. Anyone know why?
VBI Oct has to equal VIX next Weds
VBI Oct says VIX will be 11.17 next Weds
Do you believe VBI Oct?
I'm not as sophisticated (yet) as Riskarb, Maverick or Mo, but will try to answer your question with an example.
The following was written by Tom Preston of TOS in the Monkey Brains blog, during the May sell-off:
"My VIX options aren't working!!
posted by: Tom Preston on May 22, 2006, 3:30 pm
Over the past week, I have probably answered about 100 calls and emails about why long VIX call options haven't gone up as much as people had hoped with the VIX index itself rising so high. And why do they seem to be trading below parity? Are they just giving away money in that product?
A case in point are the June 15 calls, 1.90 - 2.10 with the VIX cash at 18.25. They're 1.25 under parity, looking at the cash. But the June VIX futures are trading at 15.70.
The Aug 15 calls are 1.95 - 2.00. The Aug futures are 14.80.
The Nov 15 calls are 2.15 - 2.20. The Nov futures are 15.50.
Each one is under parity if you compare it to the cash VIX. But what's happening is that the market makers are pricing the VIX options off of the futures. And if you look at the futures, they're telling you that they think that the VIX will be lower in the future than it is now. If you're a VIX market maker, you're hedging your delta risk with VIX futures. So, you're watching the VIX futures move up and down and pricing the VIX options accordingly. It's the same as the OEX and XEO market makers pricing those options off of the S&P 500 futures. Also like the OEX/XEO, you use the future as a hedge because the actual underlying index (a basket of 100 stocks for the OEX, a variance swap for the VIX) is very hard to execute quickly.
That's something that you have to understand if you're trying to bet on the direction of the VIX or using as a hedge (however imperfect) against your long portfolio deltas. Even though the VIX index is moving up or down, the VIX futures may be doing something else. You can see delayed VIX futures quotes at this link. Try to get an idea of where the VIX futures are before you trade the VIX options. "
This gives an idea of what to expect. So even if VIX cash goes up, VIX futures might not. Hope this helps.
