Vix at historic lows, similar to Japanese Bonds at 0.4%?

Discussion in 'Economics' started by Daal, Dec 15, 2006.

  1. Daal


    I'm thinking a similar trade can be set based on the fact that its very hard for the vix to go much lower. Just like the japanese bonds couldn't return negative rates the financial markets can't be possibly understimating risk much more(Maybe a BIT more but that makes a good risk/reward trade). What are some possible trades that can be done with a bulish bias in the VIX, can you buy options based on it?
  2. Long volatility options trade (long straddle, long strangle, calendar with a bearish bias, put backspread if one has a bearish bias, or long put, if one has a bearish bias).

    I'd go with the calendar or simply the put buy, scalping gammas as the position creates bear delta.

    Then again, vol tend to go/stay down around the holidays, so there's probably no need to rush. If vol stays down, I'll set up one of those positions myself late December.
  3. The first two weeks of 2007 should have "good" movement with eager-beaver retirement fund buying and carryover tax-related selling. Initiate your position(s) late in the day on Friday the 29th. We'll see how it plays out.
  4. cml2949


    is the vix just used at a indication of volatility? I noticed there are prices and they move during the day, so is the S/P vix or the DJ vix traded during the day?
  5. the VIX is the volatility in SPX options

    that is what it is

    VIX futures are traded on the CBOE

    be advised, since there is no "cost of carry" and no fungibility, vix futures do not operate exactly like a classic futures contract. they do tend to trade at a premium and diverge towards the cash vix, as the futures contract approaches settlement, but they are less volatile and again are purely speculative since there is no funge or arb play possible
  6. a vix put vertical (credit spread), for example
    -1 11 PUT
    +1 10 PUT

    has only $100 margin per contract above. With the VIX at 9.8, the current month VIX futures (VBI) may be at 10.10, maximizing the r/r on the above spread, i.e. closest to 10 as possible

    remember that the vix option is based on the vix future, or VBI on IB; VIX and VBI begin to converge in the last month, best in the last two weeks.

    trigger for this kind of trade might be any drop below VIX 10
  7. cml2949


    I see what your saying.. To my understanding you can buy/sell contracts in it as a regular future but have to close the position before the expiration?!? Sorta like the Big/ Mini gold at the CBOT..

    Looking at the chart it seems like the Dj and S/P vix have somewhat of a correlation.. What's the tick value of each? How thick/ thin are the books?
  8. While the VIX futures arent fungible and there is no cost of carry relationship to the VIX cash, you are mistaken in thinking these are purely speculative.

    The risk of holding VIX futures on your sheets can be hedged or completely eliminated and guess what, even arbed.