When to buy VIX calls?

Discussion in 'Options' started by klurby, Jul 1, 2011.

  1. klurby


    As we all know the market has made a big really this past week. We also know that the rally won't continue forever. The question is when should we buy VIX calls? Will the time be right at 15.00, 14.00, or 13.00? Lets put all of our knowledge together and find out how to profit from these VIX Calls.
  2. Even if you sell the high print on SPX doesn't infer that you'll avoid an ass kicking. You're buying variance. If we creep along in a channel you will lose. Don't buy VIX in the Summer months.

    You're better off selling index calls/call spreads.
  3. klurby


    Hello Atticus thanks for responding, Atticus what strategies do you use to trade? Please share! thanks!
  4. rew


    Shorting VXX after a big spike in volatility (spot VIX to 40 or so) is pretty much a sure thing. Of course those events are pretty are. As far as going long on volatility, I'd just as soon buy puts on SPX as calls on VIX.
  5. klurby


    Wouldn't it be more difficult to accurately buy spx puts rather than purchasing vix calls? Because it seems that it is extremely difficult to recognize resistance points in the spx. In the vix it seems that every time we get any where from 12.00, 13.00, 14.00, 15.00 we have somewhat of a run. I am thinking that the vix is going to have another run anywhere from 20 - 24 before august 2nd. Mainly based off the "scare" the media will enforce on investors about the debt ceiling.
  6. rew


    Well VIX options are tricky things. They aren't priced on the basis of the spot VIX. Instead they are priced on the basis of the VIX future with the same expiration as the option. The futures in turn aren't pegged to the spot VIX (except very near expiration), they are set at the market's expectation of the VIX at the future's expiration. (Since the VIX is not an asset that can be bought or sold there is no arbitrage tying VIX futures to VIX spot + cost of carry.)

    Also the VIX is very volatile so there is a lot of volatility priced into the options, adding to the time decay when you hold them long. When all the complications are considered worrying about resistance levels on SPX doesn't look too bad.
  7. sle


    Don't forget that you are buying calls on forward variance and thus will have a couple forms of decay - one is actual option decay and the other is roll-down on the forward variance curve. This makes buying outright calls on forward variance a pretty bad deal.
  8. klurby


    Hello sle can you please give me an example of a trade you did before. I just want to try to learn as much as I can. Thanks
  9. an outright vix call will lose in 2 ways as sle explained because in the current term structure of vix futures are trading at a premium to spot vix so as time goes by and if vix does not spike a call based off september futures will fare poorly because the september future will converge to spot vix if there is a premium such as now; thus taking your call down with it. of course a market selloff can flatten things but luck and direction must be on your side.

    i would take the suggestions of others and look at spx put spreads, etc. if you must try vix, consider a long itm call spread.
  10. Magic8


    To answer the question: Never.
    #10     Jul 3, 2011