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Betting on fear to fade

Tuesday, May 18th, 2010

Bought VIX June  puts at 4.6,  the VIX index was around 31 at the time.   Barring another bear market I think we will see the VIX pull back from the recent spikes.

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Betting that fear will fade

Monday, January 25th, 2010

I created a bear spread on VIX options, selling the deep-in-the-money  18 Feb Calls and buying 25 Feb Calls as disaster insurance.   The net credit was 4.15.  Splitting the ask / bid on both options gave a 4.20 starting point, but  when it didn’t fill I gave up a nickel–then the order filled in a couple of minutes.   The 18 calls filled at 6.22 and the 25 calls at 2.04.  Break-even at expiration will be VIX at 22, which didn’t seem like too much of a risk.  I estimated  (based on the 10 Feb call bid / ask numbers), that the VIX Feb futures were right around 24 at the time, and the VIX was up into the 25 range.

Posted in Advanced Topics, Options, VIX, all | View Comments

FAQ on VIX, the “Fear Index”

Saturday, January 2nd, 2010
  • Why do they call the VIX the “Fear Index” or “Fear Gauge”
    • Because the VIX almost always goes up when the market goes down. The scarier the decline the higher the VIX tends to go. In the worst part of the 2008/2009 bear market it went as high as 80. In Dec 2009 it has been averaging around 22. In strong bull markets it historically bounces between 10 and 15.

  • How can I get quotes for the VIX?
    • For Yahoo Finance use ^VIX
    • For Schwab use $VIX
    • For Fidelity use VIX
    • Google Finance — apparently not available
    • For VIX options quotes (called “options chains”) –check your broker’s home page, or here

  • How can I buy or short the VIX?
    • You can’t. It is a computed index like the Dow Jones Industrial Average, but instead of stocks this index is related to options prices on the S&P500 index (SPX). As the options get relatively pricier the VIX index goes higher. The ETN VXX is attempting to match the VIX at a percentage move basis but they are not attempting to match the VIX value itself.

  • Is there any way to speculate on the VIX?
    • You can buy options and futures on the VIX. I have not done futures trading on the VIX, but I have done VIX options. While not inherently riskier than options on stocks, these options have some unusual wrinkles and characteristics that you should know about. For example the VIX options typically don’t follow the VIX itself all that well on most days–they tend to not drop as rapidly as the VIX index itself, or climb as fast. This can be really frustrating! In addition the “spread” the difference between the cost to buy and to sell is quite high on these options. This is never in your favor–this makes it harder to make a profit.
    • There are also two new ETNs (Exchange Traded Note), symbol VXX (~ 1 month) , and VXZ (longer term) that are intended to track the VIX index. These trade like stocks (however sometimes they are hard to short).   VXX is not doing a good job of tracking the VIX, it has fallen quite a bit more than the VIX.  It is probably only suitable for short term positions.  See “How to go long on VIX.”

Posted in Advanced Topics, Options, VIX, all | View Comments

VIX Option Expiration Dates Jan, Feb, Mar 2010

Friday, January 1st, 2010

The next three expiration dates for VIX options are:

January 20th, 2010  (the week after equity options expire)
February 17th, 2010
March 17th, 201o

The last day of trading for the options expiring that month is the day before (Tuesday) the dates above.

Source:    2010 OCC Calendar

Posted in Advanced Topics, VIX | View Comments


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