Options on 1.5X and 0.5X Inverse Volatility


Updated: Apr 17th, 2018 | Vance Harwood | @6_Figure_Invest

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‘ 1.5X VIX short-term UVXY and their -0.5X 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.

22 Day Historic Volatility for SVXY

 

The option chains below show typical prices.

19-Mar Option Chain for UVXY

19-Mar SVXY option chain

The market makers are pricing the IVs at around 110 (UVXY) and 35(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 a must.  You can probably get fills close to mid-way between the bid and ask prices.

 

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Tuesday, April 17th, 2018 | Vance Harwood