VIX options

Everyone, thanks for your comments. As I posted before, I talk things out as I try to understand them - especially early on as those who posted were trying to get their head around this thing.

Riskarb has made some insightful comments and I think that he and perhaps many of you are years ahead of me in understanding and implementing options.

I'm going to head back to my textbooks to explore more. I have about 10-12 questions that I'm reading up on. Already I'm seeing topics such as put/call parity that would support Riskarb's assesment that the options will reflect the futures price.

Best in trading to you

Granville
 
Long an ATM straddle in the VIX is wanting either large movement in the SP options or absolutely no movement. Therefore the graph of the ATM straddle in the VIX as it corresponds to the SP is like a wavy "W." An ATM staddle is basically delta neutral on the SP.

Is anyone here on the CBOE floor? I am wondering if the VIX options trade in the same pit as the SP options.

Slainte...

:)
 
it seems the volumes are running pretty decent in the vix options... - i have taken a look at a couple of papers on valuation methodologies referenced on cboe's microsite:
http://www.cboe.com/micro/vix/Bibliography.aspx

would anyone know which valuation models for vix options are actually used in practice by market makers etc. ? i am guessing that since the otc market for volatility swaps has been around for a while, the banks may have used these as a basis for developing vix option specific models?

so far, from observing the pricing of the vix options, it seems that the price movement has been roughly "in line" with the underlying VIX, i.e. the behavior seems to resemble "normal" options (i.e. options on the log-normally distributed underlying) - i guess the mean-reverting property has not been as pronounced partly due to the current volatility being at historic lows, i.e. an increase in VIX from the lows will cause the forward volatility to rise as well, however, any further increases may not and vice versa.

i'd love to look at trading these but i am deterred by the lack of understanding of the valuation details / mechanics... i understand that this product, although it may look deceptively appealing, is probably not for the "retail public" as the behavior is a lot more complex than it may seem - i can use some valuation methodologies in the cboe papers as a starting point but it would be great to know what is actually being employed in practice.
 
also, all the action is in the calls, the OI is 5x-10x+ greater than in the puts for most strikes - i guess it's a reflection of the current environment and also of the lower volatility of the puts given vix's probability distribution / floor on the downside - it seems that selling calls / call spreads is more preferable than buying puts if the position is to be closed prior to expiry, even if having to pay 2x bid/ask spread.
 
Hi all,

anyone trading vix options during this VIX spike?
This is the first time since may 2004 (when CBOE/CFE launched the Vix futures) we have such a VIX spike (over 25). Volume on vix options has spiked also. I was wondering how to trade these little friends in such a market. I read a lot of postings on vix options under several forums here. just wondering.
Tks.
 
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