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The VIX: Using the "Uncertainty Index" for Profit and Hedging

While the Gorilla cannot recommend specific strategies for individual subscribers, keep in mind that in times of low volatility, like we are currently experiencing, it is a good idea for investors to buy calls or implement call spreads by using VIX options. The VIX futures contracts trades during the regular hours from 8: The Secret of Writing Options: Request permission to reuse content from this title. UVXY options are quite expensive due to the volatility of the ETF, but if want to increase your leverage, or reduce your capital exposure they are a possibility.

VIX options are priced off VIX futures, so any shift in futures prices influences options. Futures typically trade at a higher price than the options, so understand that when trading VIX options. The volnado trade has worked since the fall. In October, the VIX ranged from about 16 to 25 and then edged lower.

BEST PDF VIX Options and Futures: How to Trade Volatility for Profit [DOWNLOAD] ONLINE

You can see that the index oscillates between 60, reached in late and bottoms out near If you have considered trading the VIX futures, here are some ways to profit. Mean reversion is one of the techniques used by traders especially on volatile assets. The basic premise in using a mean reversion strategy is that when price tends to rise sharply, more often than not, price tends to pull back to the mean.

In this approach, a moving average of some kind is used. One of the methods to trade this approach is to wait for volatility to spike.

Bear in mind that the VIX tends to spike, especially if you watch on a daily basis. If these spikes do not coincide with a market bottom, there is a good chance that the VIX spike is more likely a fake spike to the upside and could signal future spikes to come, putting the question about mean reversion. A unique approach to trading the VIX is by making use of additional market information from the ES chart as well.

By using a ratio chart for the VIX and the ES futures contracts and applying a moving average crossover method, traders can look at potentially profitable trade set ups in the short term. The bullish moving average crossover shows the levels and the corresponding arrows on the chart shows the long signals on the VIX and short signals on the ES futures. Divergence trading is a powerful way to capture short term momentum led explosive moves in the markets.

The areas marked by the red line connecting the highs shows areas of price divergence. Following this divergence, the VIX futures often results in a strong sell off. Contango and backwardation are two aspects that govern futures markets regardless of the underlying asset. The VIX futures are no different. Contango in VIX futures is the normal, where the price of the current month futures is lower than the price of the far out VIX futures contracts.

This simply denotes the fact that investors expect volatility to rise in the future. Backwardation in VIX futures is where the front month contract prices are higher than further out contract month prices. To utilize this approach to trading the VIX, traders need to keep an eye out on two contracts, which is the current month contract and the next month's contract.

There is no effective limit on how low or high the prices can go on the VIX options until the exercise day. The payout is determined by the difference between the strike price and the VRO quotation on the expiration day. This is the expiration value, not the opening cash VIX on the Wednesday morning of expiration. VIX options expire at market open on expiration day, so expiring options are not tradeable during regular hours on that day.

VIX options do not expire on the same days as equity options. It is almost always on a Wednesday. This odd timing is driven by the needs of a straightforward settlement process. For more on this process see Calculating the VIX—the easy part. The bid-ask spreads on VIX options tend to be wide. If you have time start halfway between the bid-ask and increment your way towards the more expensive side for you.

This means its IV will always decline over time. As a result, VIX options will often have lower IVs for longer-term options—not something you see often with equities. In December, VIX ranged from below 12 to above Over the past 10 days, investors have positioned for a repeat of the volnado trade. If you cannot access VIX futures prices, skip this trade, and instead use the information to make better sense of the sharp swings in the market.

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How to Trade the VIX

Volatility index futures and options are direct tools to trade volatility. VIX is the implied volatility estimated based on S&P option prices. VIX options and futures allow traders to profit from the change in volatility regardless of the underlying price direction. BEST PDF VIX Options and Futures: How to Trade Volatility for Profit [DOWNLOAD] ONLINE. READ ONLINE VIX Options and Futures: How to Trade Volatility for Profit Peter Lusk READ PDF FILE ONLINE. A detailed look at VIX futures spreads and how you can exploit this strategy for profit. With a comprehensive online manual included, Peter will simplify and demystify trading VIX futures and options for you. Start reaping the benefits of volatility today.