VIX question - Atticus or anyone else

Discussion in 'Options' started by Eliot Hosewater, Oct 14, 2010.

  1. It was mentioned on the ETF forum to sell puts on individual stocks and for protection against a general market decline to buy index puts or VIX calls (or a VIX bull spread). I am familiar with how to determine how many index puts to buy, but how would you calculate how many VIX call contracts to buy?

  2. 1) It's a form of short dispersion. You start with a correlation fig. You can go quick and dirty and simply use a vol-weighted beta and stick to ATMs. TOS has the functionality built-in to their platform, but I haven't used their implementation. You're trading variance when you're in VIX options (unless trading delta-one synthetics), so it's best-practice to avoid outright variance exposure and stick to a dispersion model; long downside index puts/spreads and short share-puts. Lean short delta (5-10 at inception).

    2) You can get silly and sell share-puts/sell index calls. You're underwater on smile (otm index skew) by selling otm index calls, and receive no vol-edge in the shares... but the vol edge is no worse than the long/short. Stick to ATMs. I would lean long delta (5-10).

    I am working on a manufacturing startup (bastions) and trading opm so I won't be around much. PM me if you need some pointers.
  3. Thanks for the generous offer of PMing you.

    I'll have to decide if I want to embarrass myself by asking dumb questions.
  4. If your money is on the line, no question is dumb.