If things weren’t derivative enough for you before, you can add one more level of indirection to your volatility investments.
Options are available on ProShares‘ 2X VIX short-term UVXY and their -1X inverse short-term SVXY. These options are similar to VXX’s options; they are American exercise style and expire on the same day as equity options. VIX options are European exercise and expire on the same day as VIX futures.
These options aren’t cheap. Volatility funds are themselves volatile, which drives the premiums higher. The charts below show the historical 22 day volatilities (HV) of UVXY and SVXY.
The option chains below show typical prices.
The market makers are pricing the IVs at around 150 (UVXY) and 70 (SVXY). In comparison, April ATM VIX options are carrying an IV of around 65 and VXX ATM options have an IV of 40. UVXY’s option IVs have to be some of the highest ones around… These options are expensive, and their bid/ask spreads are wide, but options open up a whole host of interesting strategies. If you do trade these products, limit orders are must. You can probably get fills close to mid-way between the bid and ask prices.
- Is Shorting UVXY, TVIX, or VXX the Perfect Trade?
- How Does SVXY Work?
- How Does UVXY Work?
- UVXY Reverse Split Number 7—January 12, 2017
- Backtests for Popular Long & Short Volatility Exchange Traded Products
Wednesday, December 23rd, 2015 | Vance Harwood