Options on 2X and Inverse Volatility

Updated: Dec 23rd, 2015 | Vance Harwood

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.

22 Day Historic Volatility for XVXY


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 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.


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Wednesday, December 23rd, 2015 | Vance Harwood
  • Andrew_notPorC

    I trade VXX puts mostly. I could be persuaded to look at UVXY puts, but they are far too expensive.

    Do you think the IV will fall when the market becomes more liquid?

    Also, any thoughts on the $2 billion AUM for VXX these days? I was surprised, given how much of a beating VXX has been taking. Maybe this explains the contango in VIX futures. A $2 billion fund has to have some impact on the term structure.

  • vance3h

    Hi Andrew, Unless the historic volatility of UVXY drops I don’t think we’ll see much drop in the IVs. I haven’t tried to buy any of the options, but I suspect that you might get fills pretty close to the mid price.

    The open interest on volatility funds tends to climb during long bull runs and drop when the corrections happen. I think the increased popularity of volatility as an asset class is showing in these AUMs. Jared from Condor Options has done some good work on whether VXX et all is disturbing the overall market and he sees no sign. Two billion relative to what is the question.
    — Vance

  • Tom Carlson

    Vance, love the blog. Question for you. Have you ever done a study on future “volatility of volatility”, i.e., VVIX. Does volatility of volatility tend to be in either contango, backwardation, or neither?

  • Hi Tom, Thanks for the feedback, I appreciate it! Regarding the term structure of vol of vol, I haven’t done a study. A quick look at ATM VIX option IVs showed that the Vol of vol term structure is currently pretty flat. The realized vol of the further out VIX futures is definitely lower, so if the vol of vol term structure is generally flat that suggests the risk premium (difference between realized and implied volatility) goes up with time.

    — Vance