Many people seem to believe that the CBOE’s VIX Futures market is attempting to predict upcoming CBOE VIX® values. I think they are mistaken. Most futures prices have very little to do with predicting the future. Futures contracts were invented to allow producers/consumer of commodities to limit their business risk by locking in future prices. In exchange for eliminating price risk, they give up the potential for increased …
The price of Herbalife ($HLF) has been relatively stable the last couple of weeks with the Icahn / Ackman tug-o-war in a tense tie. The historical volatility has been running around 26, but the IVs on the weekly options are relatively rich with the average running around 50. Currently a 35.5/37/39/40.5 iron condor is offering a .575 credit (midpoint) for the 12-April-13 options. …
Occasionally there are eye-popping percentage moves in the CBOE’s VIX® index—these moves generate a lot of headlines . As an antidote to the hype a few savvy VIX followers noted: “Remember that $VIX is already a percentage.” Jared Woodward from Condor Options “The $VIX was up 2.08% today, NOT 18.5%” Mark Sebastian from Option Pit . I have to admit that my brain spun a bit on Jared’s percent of a percent …
In 2010 I set out to prove that I understood the indexes that underlie the volatility Exchange Traded Products (ETPs). I developed a spreadsheet that uses the CBOE’s historical VIX Futures data to produce the short term (1 to 2 month) and medium term (4th through 7th month) rolling volatility indexes. The heart of these indexes is the daily roll of VIX futures contracts. At …
One of the options strategies Jeffery Augen discusses in his excellent book, “The Volatility Edge in Options Trading” takes advantage of the typical ramp up in option’s implied volatility (IV) before an earnings announcements. Upcoming announcements create uncertainty, and the option market prices that in by increasing the premiums—which is reflected in the IV of the options. This ramp up in IV can be surprisingly …
