VIX Futures

Discussion in 'Financial Futures' started by bebe, Mar 7, 2004.

  1. bebe

    bebe

    from the CBOE website:

    "The initial product to trade on CFE will be CBOE Volatility Index (VIX) Futures. VIX Futures are expected to begin trading on March 26, 2004, pending regulatory approval. After the launch of VIX Futures and other volatility-based futures, we intend to list other products. "
     
  2. Excellent news - volatility is the most volatile market out there!
     
  3. We are running out of volatile things to trade. It seems like a product is good for some time, and then its volatily goes to 0.
     
  4. silk

    silk

    Will the vix futures trade at a big premium?

    I would love to put all my networth into the VIX at 14. And just sit back and wait till it hits 20+ and then push the sell button.

    Would beat day trading thats for sure.

    Must be some catch. How exactly will this thing trade. Can you park money in this thing for months and months and wait for the next spike??
     
  5. Aaron

    Aaron

    Good question. Since a lot more people want insurance from equities dropping than from equities rising, I would guess there are a lot more natural longs for the VIX than natural shorts. So the back months will probably trade at a premium to spot — at least when the VIX is near the low end of its historical range.

    So going short the VIX will probably be profitable on average with big losses when there is a "crash" and the VIX spikes up. This is similar to writing out of the money SPX or QQQ puts — on average the puts will expire worthless and you, the writer, will make money, but every so often you'll get handed a big loss.
     
  6. ktm

    ktm

    Good points Aaron.

    I expect to use these futures in coordination with other products, as a hedge mostly. A simple example might be long SPX puts and short the VIX, or vice versa. The ratio has to work out between the products, but that's basic math.

    I was disappointed that the VIX futures will only be $100 per point and reportable positions are just 25 contracts. I suspect that if the liquidity is high, these will become minis and a $500 per point option will be made available.
     
  7. Luckily the chances of that happening with this market are rather slim :D
     
  8. Won't arbitrage against the options market eliminate any premium?

    As for levels, IMO the VIX may well trade below 10 before it finally bottoms.
     
  9. Nordic

    Nordic


    Does anyone have any indications of execution costs to trade this new Vix futures contract?