 |
lioresh
Registered: Aug 2012
Posts: 14 |
08-25-12 08:06 PM
Hi all,
(NOTE - when I say $VIX, I mean the CBOE S&P500 Volatility Index. When I say $SPX I mean the S&P 500 index itself. I am NOT talking about any ETFs or ETNs)
On the surface, $VIX is the volatility of $SPX, right?
BUT, is this to say that a rise/fall in the $VIX would automatically mean a similar increase/decrease in the Vega of all $SPX options?
I hope I made the question clear enough, I need a solid answer from someone with deep understanding of the subject.
thanks in advance!
|
| |
|
Edit/Delete • Quote • Complain |
marameo
Registered: Aug 2012
Posts: 40 |
08-25-12 11:48 PM
Quote from lioresh:
Hi all,
(NOTE - when I say $VIX, I mean the CBOE S&P500 Volatility Index. When I say $SPX I mean the S&P 500 index itself. I am NOT talking about any ETFs or ETNs)
On the surface, $VIX is the volatility of $SPX, right?
BUT, is this to say that a rise/fall in the $VIX would automatically mean a similar increase/decrease in the Vega of all $SPX options?
I hope I made the question clear enough, I need a solid answer from someone with deep understanding of the subject.
thanks in advance!
Well, I have heard that many investors dropped their ETN/ETF VIX positions over the past few months. That must have made the VIX futures drop down as well; since market makers are hedging them with $SPX options, VIX spot must have droppeddown as well and the SPX index is behaving accordingly. Just my 2 cents.
|
| |
|
Edit/Delete • Quote • Complain |
sle
Registered: Apr 2003
Posts: 1609 |
08-26-12 01:44 AM
Quote from lioresh:
Hi all,
(NOTE - when I say $VIX, I mean the CBOE S&P500 Volatility Index. When I say $SPX I mean the S&P 500 index itself. I am NOT talking about any ETFs or ETNs)
On the surface, $VIX is the volatility of $SPX, right?
BUT, is this to say that a rise/fall in the $VIX would automatically mean a similar increase/decrease in the Vega of all $SPX options?
I hope I made the question clear enough, I need a solid answer from someone with deep understanding of the subject.
thanks in advance!
Actually, it's not a bad question. VIX is the "expected" volatility of S&P 500 as formalized by the fair variance strike. Whatever the replication argument (too much to get into here), this means that it takes into account implied volatilities of options across all strikes. Thus, majority of changes in the level of VIX do no require changes in implied volatility for fixed S&P strikes - all that is happening is that VIX formula now takes into account more or less strikes with higher volatility (S&P moves down a few ticks, VIX moves up - it's not like vol got bid over these few seconds).
So, if you are asking "does the change in VIX necessarily mean that there is more demand for S&P options?" then the answer is certainly "no".
|
| |
|
Edit/Delete • Quote • Complain |
hedgeman
Registered: Jul 2012
Posts: 78 |
08-26-12 08:31 AM
Quote from sle:
So, if you are asking "does the change in VIX necessarily mean that there is more demand for S&P options?" then the answer is certainly "no". [/B]
If there is a rise in the VIX, I always thought this meant that if the VIX is a measure of put buying activity, this would mean that there is an increase (more demand) for options?? Can you please explain how this may be not accurate? Thanks.
|
| |
|
Edit/Delete • Quote • Complain |
lioresh
Registered: Aug 2012
Posts: 14 |
08-26-12 09:43 AM
Quote from sle:
Actually, it's not a bad question. VIX is the "expected" volatility of S&P 500 as formalized by the fair variance strike.
....
....
So, if you are asking "does the change in VIX necessarily mean that there is more demand for S&P options?" then the answer is certainly "no".
Sle, thanks for your answer. Allow me to be more accurate in my question:
Let's make the hypothetical assumption that one can predict the change in the VIX over the next trading day. What would be the single most best way for him to play that prediction (with options)? My instincts tell me to be long/short vega on $SPX options?
Lioresh
|
| |
|
Edit/Delete • Quote • Complain |
| Receive
an email whenever a new post is added to this thread by subscribing
to it. |
|
|
|
|
