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VIX options vs VXX options for bull call debit spread
- Thread starter sss12
- Start date
Can you elaborate on your goal? (some specifics) You are trying to profit from expected (or probable) "...." move in "xxx" in next Y days. By spread, do you mean vertical spread? Likely you are interested in trying to capitalize on a very short term directional movement or spike in VIX, if so, your time frame may bias your choice. Interesting that the Bid/Asked spread on VXX options is very small compared to those on VIX! Could be due to the increment being 5 cents on VIX vs penny on VXX. -- VIX options have a lot more volume. With some specifics, perhaps someone here with more trades under their belt with these products can provide some insights.
Can you elaborate on your goal? (some specifics) You are trying to profit from expected (or probable) "...." move in "xxx" in next Y days. By spread, do you mean vertical spread? Likely you are interested in trying to capitalize on a very short term directional movement or spike in VIX, if so, your time frame may bias your choice. Interesting that the Bid/Asked spread on VXX options is very small compared to those on VIX! Could be due to the increment being 5 cents on VIX vs penny on VXX. -- VIX options have a lot more volume. With some specifics, perhaps someone here with more trades under their belt with these products can provide some insights.
Not to side-track you, but if you are looking for a possible Yellin spike, you may compare the your Debit Spread expectations on both products to a simple long entry in UVXY for a short term "bullish" play. Not an apples to apples comparison, but may be simpler and less risk and slippage. This is probably not a good choice if you plan to hold this position more than a week or so, as it has a natural erosion due to contango and product structure. (I have not given this adequate thought, so use your good judgement)
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Going long volatility is tough to do profitability generally speaking.
Between your two choices, I prefer the VIX calls. VIX options are picking a date where a certain VIX will define your payout, so with these you can choose what time period you think VIX is going to spike (even though the ATM VIX calls are higher than the current VIX and based on future expectations). The issue with VXX is that you really want vol to spike right after you put in the trade. Very generally speaking, the lower the VIX is, the higher the drag is in VXX (and UVXY), as a low level of the VIX increases contango. So everyday vol is low you are paying a high "drag toll". The result? If it takes 3 weeks of low vol before it inevitably spikes up, that drag might have offset any gains you now have. To be fair, if vol spikes tomorrow, VXX will perform better than long-dated VIX calls. But the VIX feels cleaner to me, as I am picking the date.
Generally speaking, I prefer other ways of going long vol, like calendars or diagonals on the SPY/SPX. But even those are not my favorite trades.
Between your two choices, I prefer the VIX calls. VIX options are picking a date where a certain VIX will define your payout, so with these you can choose what time period you think VIX is going to spike (even though the ATM VIX calls are higher than the current VIX and based on future expectations). The issue with VXX is that you really want vol to spike right after you put in the trade. Very generally speaking, the lower the VIX is, the higher the drag is in VXX (and UVXY), as a low level of the VIX increases contango. So everyday vol is low you are paying a high "drag toll". The result? If it takes 3 weeks of low vol before it inevitably spikes up, that drag might have offset any gains you now have. To be fair, if vol spikes tomorrow, VXX will perform better than long-dated VIX calls. But the VIX feels cleaner to me, as I am picking the date.
Generally speaking, I prefer other ways of going long vol, like calendars or diagonals on the SPY/SPX. But even those are not my favorite trades.