VIX = SPX options' Vega?

granted. however, if I have a solid forecast for where the VIX is going tomorrow, shouldn't I try to be Delta-neutral (on S&P500 options position) and play the volatility game only?

I don't know where the S&P500 index is actually going, but I do "know" its implied volatility is going to rise/decline. doesn't that make me a Vega player, going long/short volatility while trying not to make any directional bet on the S&P?

That's my missing piece here, and the only thing I haven't been able to get a clear answer on. :)
 
Quote from lioresh:

granted. however, if I have a solid forecast for where the VIX is going tomorrow, shouldn't I try to be Delta-neutral (on S&P500 options position) and play the volatility game only?

I don't know where the S&P500 index is actually going, but I do "know" its implied volatility is going to rise/decline. doesn't that make me a Vega player, going long/short volatility while trying not to make any directional bet on the S&P?

That's my missing piece here, and the only thing I haven't been able to get a clear answer on. :)
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Yes. You can buy 1month straddles. but there are lots of nuances and when you trade vol, you are trading a very small piece of the risk and attempting to hedge out all the other risks which can only be done imperfectly. The noise to the view you want to express will be pretty high.
 
Quote from lioresh:

granted. however, if I have a solid forecast for where the VIX is going tomorrow, shouldn't I try to be Delta-neutral (on S&P500 options position) and play the volatility game only?

I don't know where the S&P500 index is actually going, but I do "know" its implied volatility is going to rise/decline. doesn't that make me a Vega player, going long/short volatility while trying not to make any directional bet on the S&P?

That's my missing piece here, and the only thing I haven't been able to get a clear answer on. :)
More...

judging by reading the way you started this thread... no offense.. but you need to read alot more about this subject before putting on any size trade.. paper trade or micro size the trade..
theres no such thing as Delta neutral.. thats an idea brought about by academia.. your delta is always changing and the last thing it is .. is neutral.. if your gonna manage these trades for real.. you need to know about secord order greeks.. IE "gamma"
if you look at what the current variance of the S&P is and you think that the options are implying variance lower then what will be realized you find a way to sell options.. IE condors, credit spreads, short puts, short calls, butterflys.. whatever your risk tolerance.. if you forcast that the implied volatility of the options are to cheap for the volatility about to be realized.. you buy premium.. ratio backspreads, straddles, strangles, buy otm butterflys, sell atm butterflys..

by the way.. don't make it more complicated with the Vix .. theres a cost to every business right? buying ETF's ETN's have a roll cost in the futures to keep you exposed in the vix.. because you can only get exposure directly either through buying the options on the S&P or by trading directly in the futures.. and you can't think that just because the vix is low that it won't stay that way etc..

the vix can actually go higher upon rallys especially at the end of long runs up..
 
I am fully aware of Gamma, and if you read the whole thread you will find my idea of MAINTAINING a Delta of -+0 by using synthetic contracts so that my total exposure to the Delta is kept as low as possible. (?)


I don't wanna deal with futures - the risk and margin req. are too high in my view.

thank you for your comment, I'd love to hear more about the subject from you
 
Quote from lioresh:

I am fully aware of Gamma, and if you read the whole thread you will find my idea of MAINTAINING a Delta of -+0 by using synthetic contracts so that my total exposure to the Delta is kept as low as possible. (?)


I don't wanna deal with futures - the risk and margin req. are too high in my view.

thank you for your comment, I'd love to hear more about the subject from you
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Then maybe you should paper test your strategy while you save up money to trade it the most efficient way.
 
Quote from lioresh:

I am fully aware of Gamma, and if you read the whole thread you will find my idea of MAINTAINING a Delta of -+0 by using synthetic contracts so that my total exposure to the Delta is kept as low as possible. (?)


I don't wanna deal with futures - the risk and margin req. are too high in my view.

thank you for your comment, I'd love to hear more about the subject from you
More...

ok i read the first two pages.. your comment about synthetics is on the third.. my bad.. either way... you must be talking about long short stock replacements with options.. IE longcall short put = long stock.. and vice versa... if your hedging alot of contracts this could make sense.. but this doesn't give you near the leverage trading in futures does.. i've done the math for one synthetics have heavy transaction costs related to bid and ask spreads compared to futures.. my account isn't large enought to sell enough options and then hedge in like the ES futures ... 1 ES future is 4350 bucks.. the hedging with futures is something i'm very interested in and i haven't chased down all the math on that...

theres definitly a sweet spot for right gamma/theta relationship.. you can go to far out and its easy to hedge at longer intervals.. but you just don't get the return.. more near term you experience heavy delta changes.. i'm new to this so anyone cares to audit anything i say.. go ahead... i'm decently read yet not alot of practice..
 
Quote from lioresh:

i have been. but i thought this forum would be a valuable source if knowledge regardless
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it is a great resource.... and actually its makes great company to reading books and other resources... no question is a stupid question really :) except the ones you don't ask.. i'm the last one to talk.. i'll fucking interigate anyone who knows anything about derivatives for insight.. haha
 
I have been collecting options settlement prices for a couple of weeks by now and did backtest an ATM long Put butterfly DEC12 starting from end-july to early-september. If I am correct, the long butterfly is supposed to be a short volatility strategy safer then the classic short straddle. The fly was purchased for a small debit (21pts), and during the past 4 weeks it did not go below that original price despite the market movements up and down. So far, the butterfly has gone from 20pts to 65pts. It went OTM, the came back to ATM and so forth. I think if volatility decrease the butterfly is more likely to end up in the profit area whereas a raise in volatility will decrease that likelyhood. I must admit that I am using settlement prices and the story might turn out to be quite different when MM are pricing bid/ask (mostly when unwinding the position).

So, what's the real story behind flies (especially long-term)?

Thanks
 
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