Is it possible to trade VIX VXN VXD futures? I tried looking up info on it and saw prices and charts, but never any volume? Thanks cml2949
VIX futures (VBI) volume typically is in the hundreds. Their is quite a bit of volume in the options (VIX). They are available at IB.
Why don't people trade VBI? What is the catch with the vix futures? I mean, since the index is predictably cyclical, it can stay at 10-12 for a long time, but it is almost guaranteed that it will rise above that at least once every year, so what is the catch to buying vix futures, how can one lose money by buying and holding until volatility is high? Do they have time value? Or do the futures only go up very little when the index goes up a lot? What exactly is it that makes the instrument not so attractive?
The "problem" is that there really isn't an exact/precise/well-defined underlying instrument that you can hedge against. CBOT Corn has corn, eMinis have a stock portfolio, 10-year notes have government securities, gold has bullion in a bank vault. The VIX is derived from an assortment of ever-changing options. It's the same thing with the real estate contracts too.
That is incorrect. There is a stat arb between vix futures and vix options. Do you really believe all the open interest in the vix paper is speculative?
No, Nazzdack is correct. The relationship between the vix options and futures does not address his point, which was that there is no underlying instrument to hedge the futures with. The vix options are not an underlying instrument, a constantly and continuously varying strip of s&p options are the underlying. You can dynamically replicate the VIX but it is expensive and only tracks well if you are adjusting every few minutes. Every time the s&p moves though a strike you are selling completely out of one option in your strip and buying into another, and if it chops around that strike, you are churning your account without mercy. Because I find it so difficult to even estimate the cost of the hedge, I can't figure out fair value for the futures with any certainty. And I have spent a considerable amount of time on this with no useful conclusion. I would like to trade the vix futures, but with no way of telling when the price is out of line, I don't. I suspect many other traders are in the same position. If you know of a static, or even a once- or twice-a-day adjustable hedge for the vix futures in its actual underlying (strips of near and next sp options), please post it. .
Per se. However, you do not need an underlying instrument to hedge exposure. Hedge can be replicated. That's all i am saying.
All of the above. VIX futures and VIX cash trade between contango and backwardation and they fully reflect the mean reverting tendency of the VIX. Meaning, they trade at a premium(a large premium) when vix is low and at a discount when vix spikes. The closer to cash you are, the more gearing in the contract. You cant simply buy and hold and wait for the vix to spike, synthetic theta will eat you alive. If you find a way to model all this, then yes, you can trade them outright. Otherwise, they are best used to hedge vol exposure. Liquidity can be a problem.