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VIX VXN VXD FUTURES at the CBOE
- Thread starter cml2949
- Start date
VIX futures (VBI) volume typically is in the hundreds.
Their is quite a bit of volume in the options (VIX). They are available at IB.
Their is quite a bit of volume in the options (VIX). They are available at IB.
Why don't people trade VBI?
What is the catch with the vix futures? I mean, since the index is predictably cyclical, it can stay at 10-12 for a long time, but it is almost guaranteed that it will rise above that at least once every year, so what is the catch to buying vix futures, how can one lose money by buying and holding until volatility is high? Do they have time value? Or do the futures only go up very little when the index goes up a lot? What exactly is it that makes the instrument not so attractive?
What is the catch with the vix futures? I mean, since the index is predictably cyclical, it can stay at 10-12 for a long time, but it is almost guaranteed that it will rise above that at least once every year, so what is the catch to buying vix futures, how can one lose money by buying and holding until volatility is high? Do they have time value? Or do the futures only go up very little when the index goes up a lot? What exactly is it that makes the instrument not so attractive?
The "problem" is that there really isn't an exact/precise/well-defined underlying instrument that you can hedge against. CBOT Corn has corn, eMinis have a stock portfolio, 10-year notes have government securities, gold has bullion in a bank vault. The VIX is derived from an assortment of ever-changing options. It's the same thing with the real estate contracts too.
Quote from FourZebra:
Why don't people trade VBI?
What is the catch with the vix futures? I mean, since the index is predictably cyclical, it can stay at 10-12 for a long time, but it is almost guaranteed that it will rise above that at least once every year, so what is the catch to buying vix futures, how can one lose money by buying and holding until volatility is high? Do they have time value? Or do the futures only go up very little when the index goes up a lot? What exactly is it that makes the instrument not so attractive?
Look at the cost of carry. Huge. Makes it a fairly expensive way to hedge your portfolio.
Quote from nazzdack:
The "problem" is that there really isn't an exact/precise/well-defined underlying instrument that you can hedge against. CBOT Corn has corn, eMinis have a stock portfolio, 10-year notes have government securities, gold has bullion in a bank vault. The VIX is derived from an assortment of ever-changing options. It's the same thing with the real estate contracts too.
That is incorrect. There is a stat arb between vix futures and vix options. Do you really believe all the open interest in the vix paper is speculative?
No, Nazzdack is correct. The relationship between the vixQuote from rallymode:
That is incorrect. There is a stat arb between vix futures and vix options. Do you really believe all the open interest in the vix paper is speculative?Quote from nazzdack:
The "problem" is that there really isn't an exact/precise/
well-defined underlying instrument that you can hedge
against
options and futures does not address his point, which was
that there is no underlying instrument to hedge the futures
with. The vix options are not an underlying instrument, a
constantly and continuously varying strip of s&p options are
the underlying.
You can dynamically replicate the VIX but it is expensive and
only tracks well if you are adjusting every few minutes. Every
time the s&p moves though a strike you are selling completely
out of one option in your strip and buying into another, and
if it chops around that strike, you are churning your account
without mercy.
Because I find it so difficult to even estimate the cost of the
hedge, I can't figure out fair value for the futures with any
certainty. And I have spent a considerable amount of
time on this with no useful conclusion. I would like to trade
the vix futures, but with no way of telling when the price is
out of line, I don't. I suspect many other traders are in the
same position.
If you know of a static, or even a once- or twice-a-day
adjustable hedge for the vix futures in its actual underlying
(strips of near and next sp options), please post it.
.
Quote from Kevin Schmit:
No, Nazzdack is correct. The relationship between the vix
options and futures does not address his point, which was
that there is no underlying instrument to hedge the futures
with. The vix options are not an underlying instrument, a
constantly and continuously varying strip of s&p options are
the underlying.
Per se. However, you do not need an underlying instrument to hedge exposure. Hedge can be replicated. That's all i am saying.
Quote from FourZebra:
Why don't people trade VBI?
What is the catch with the vix futures? I mean, since the index is predictably cyclical, it can stay at 10-12 for a long time, but it is almost guaranteed that it will rise above that at least once every year, so what is the catch to buying vix futures, how can one lose money by buying and holding until volatility is high? Do they have time value? Or do the futures only go up very little when the index goes up a lot? What exactly is it that makes the instrument not so attractive?
All of the above. VIX futures and VIX cash trade between contango and backwardation and they fully reflect the mean reverting tendency of the VIX. Meaning, they trade at a premium(a large premium) when vix is low and at a discount when vix spikes. The closer to cash you are, the more gearing in the contract. You cant simply buy and hold and wait for the vix to spike, synthetic theta will eat you alive.
If you find a way to model all this, then yes, you can trade them outright. Otherwise, they are best used to hedge vol exposure. Liquidity can be a problem.