Further understanding of VIX options

Discussion in 'Options' started by Saltynuts, Feb 5, 2018.

  1. i960

    i960

    Just forget about VIX cash/spot with the options. Your underlying is the futures and hence there's a term structure involved. If in June, the term structure stays as it is today (which is doubtful) then VXM8 should end up 20+ as it slides up the curve. In reality the curve could go back into contango but with a new "floor" established, also helping your further out options.

    Wouldn't be the first time the back months were priced up 20+ either. Here's a chart of rolling 4th expiration future:

    VX_4_mon_out.png
     
    #11     Feb 5, 2018
  2. i960

    i960

    XIV is an ETF/ETN with a constant maturity 30 day vol accomplished by their balance of front and back month VX contracts. It's not a CBOE product and there's nothing "official" about how it tracks VIX or not.
     
    #12     Feb 5, 2018
  3. Well, I understand that much. It does indeed track the VIX, if not officially. I'm asking more about how VIX options would interact with it. Specifically, if I was right on this thread when I said that, subject to having sufficient margin, OP was unlikely to lose any additional if held until expiry (being that it's already 'ITM').
     
    #13     Feb 5, 2018
  4. ironchef

    ironchef

    I learn something new from you today. Thanks.

    A question for you and Saltynuts: What is the rationale for taking both a long and a short positions on volatility?
     
    #14     Feb 7, 2018
  5. Saltynuts

    Saltynuts

    ironchef, for example, you expect volatility to move up a good bit, so you go long volatility, but to protect yourself if it craters you buy a put on volatility. One of probably many examples.
     
    #15     Feb 7, 2018
  6. Saltynuts

    Saltynuts

    Or, this trade I was talking about - you purchase XIV or SVXY, so you are short volatility. To protect yourself from a total wipe-out (as pretty much occurred), you might have purchased a VIX call (probably good bit out of the money so you can make money over time from the overall position). The idea is that XIV and SVXY might go up significantly, but as long as you can avoid a wipe-out scenario like that which occurred sooner or later they will catch back up. That would be the idea, but a bad one it seems given the mechanics of XIV and SVXY.
     
    #16     Feb 7, 2018
  7. Wow...looking back at my post you quoted was strange--it seems like it's from ages ago because of how much I've picked up about the workings of VIX ETNs. It was 48 hours ago...lol. Also, it's totally untrue that the value of that will recover (I was under the impression the ETN was options based when I said that). So...try not to learn to much for that post, I've said better things about it since on the other VIX threads (seriously, this is like bitcoin--we damn near need a whole forum for it! :p)

    But that rationale depends, goes from hedging to outright speculation to hedging a hedge. The one place I use the VIX (net long call ratio spreads) is to hedge against the very beginning of a small (or large) shock systemic down move.

    Here we go...amended post with the inaccurate stuff grayed out.

     
    #17     Feb 7, 2018