VIX-Trading. What is the best way to make money?

G

gg12

Today I took a closer look at the potential of the VIX.

VIX presents volatility of SP-Options.

The VIX itself is very volatile and has very nice long swings.
I have attached a graphics which shows that on a 1 year basis. So even we have very low readings of the Indexes volatility the waves are long.

There are futures and options available (not too big volume yet).

What do you think is the best way to make money trading that great market?
 

Attachments

One note of caution, the underlying instrument for the futures and the options is NOT the spot VIX index, so be careful about using the spot VIX to make any trading decisions! For more info check out the CBOE website.
 
Further, IMO the best way to make money on the movement of the VIX is to avoid trading the futures and options based loosely on the VIX.

They've been out for a while and there's a good reason the volume isn't there.
 
MTE
ktm

I agree with you.

VIX (VBI) and futures/options are very loosely coupled.

I a specific sense also RUT and ER2 or NDX and NQ-futures are also not identical in there movement.

Generally; To backtest on the index give only gives a first impression about what would be possible in derivatives on that indexes.

Risk management needs always to be applied. Trading bears risk -always!

If there is low volume on instruments it's harder to trade because of slippage using stops and non filled limit orders.

But look at attached graphics. Potential theoretical rewards are extremely high (time frame is 6 month, volas are very low).

The 'equity' curve is very smooth - no big DDs.
 

Attachments

The two options that make the most sent to me -- depending on the magnitude and duration of a volatility spike you expect -- are:

1) bear call spreads (until the markets have made a more obvious top and some panic is on the immediate horizon)

2) call back spreads (if you think the volaltility spike is imminent and/or will be severe)

At the risk of a little self-promotion, I talk a little about these two plays in the VIX and a lot of other VIX-related stuff at: http://vixandmore.blogspot.com/2007/02/waiting-for-godot.html
 
Quote from gg12:


But look at attached graphics. Potential theoretical rewards are extremely high (time frame is 6 month, volas are very low).

The 'equity' curve is very smooth - no big DDs.
More...

I was using VBI futures for few months as hedge, so my advice is: check waters first in real environment.

Your graphics may not help much with specific issues related to these instruments.
 
bl82

I looked at you webpage. Thank you! It' s very interesting.

Can you post an example of your recent trades?

I heard selling puts is a good long term strategy...
 
Quote from bl82:

The two options that make the most sent to me -- depending on the magnitude and duration of a volatility spike you expect -- are:

1) bear call spreads (until the markets have made a more obvious top and some panic is on the immediate horizon)

2) call back spreads (if you think the volaltility spike is imminent and/or will be severe)

At the risk of a little self-promotion, I talk a little about these two plays in the VIX and a lot of other VIX-related stuff at: http://vixandmore.blogspot.com/2007/02/waiting-for-godot.html
More...


Bear call spreads on vix ops are prohibitively expensive in risk terms due to the +skew. The only thing going for them is the mean reversion if you happen to catch it. Analogous to selling put spreads in the spx.

Keep up the good work on your blog. A lot of good stuff on there.
 
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