trading the vix

Discussion in 'Trading' started by passi, Jun 17, 2005.

  1. passi



    how can i trade the vix?

    futures, option?

    i have an account by IB

  2. ktrader


    You can trade VIX futures or S&P options (ES, SPY,etc.). It really is a matter of choice and strategy. I trade ES Options and VIX futures to capture moves in the VIX.
  3. Can you simulate VIX trades using the ES or spy options? If so how? I would just simply trade the VIX but the spreads and volume is pathetic.
  4. passi


    yes that could be an idea... trading the s&P

    if the vix is very low and turns up you go in the market (short/long) depending on the marketdirection of the sp

    you mean that way?
  5. No what I meant was that I would like to trade the VIX but the spreads are too wide. What I was asking was whether you simulate VIX trades using spy or ES options instead of trading the VIX.
  6. ktrader, how has the slippage been?
  7. MTE


    You cannot simulate VIX futures trades with SPY/ES options exactly, but since VIX is the implied volatility of SPX options you could buy straddles when VIX is at a low, which would be similar to going long VIX futures. However, the problem is time decay, which is non-existent in futures.

    When VIX is at a high you could sell straddles or some other strategy, which has a negative Vega. In this case, time decay would actually help.

    So, in other words, it won't be exactly the same as trading VIX futures, but you do get exposure to VIX movement.
  8. That sounds like it would be really tough if you were trading real short term. I don't hold onto my positions for very long (in swing trading terms) maybe 5 to 6 days at the max.
  9. ktrader


    First, you can certainly simulate trading volatility as measured by the VIX using S&P options. Read the cboe whitepaper on how the vix is calculated and you will understand why you can do this...VIX is derived from a strip of S&P options.

    Yes, you do have time decay to worry about but depending on your strategy and forecast for future volatility that time decay could also work in your favor. may not consider time decay a factor in certain futures contracts but you have to factor in the premium or discount the contract is trading at compared to the spot. The AUG VBI is trading at a pretty decent premium right now, which creates potential trading opportunites.

    I traded the VBI's quite a bit and routinely get filled inside the spread.
  10. MTE



    I didn't say you cannot simulate it, I said you cannot simulate it EXACTLY. In other words, there're other factors that need to be considered when trading options in place of VIX futures.
    #10     Jun 17, 2005