Volatility White Papers: Power Laws & VIX Options Explained

Recommended Papers  Tales of the Unexpected by Andrew Haldane This accessible paper (only one equation) is the best that I’ve ever read on the differences between processes accurately modeled by Gaussian/normal distributions and those better matched by power law distributions.   I have seen this distinction made many times, but this paper provided examples and reasoning that really helped me internalize the differences.   Most of our stock …

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VXX Options—Similarities and Differences with VIX Options

VXX options offer ways to take either long or short volatility positions.  Unlike most securities VXX tends to go up when the market is down—which leads to some signficantly different options characteristics. Comparing VXX options to VIX options: Similarities: Both are based on S&P 500 volatility futures Will show a strong reversion to baseline behavior when the market is behaving itself—the VIX index and VXX …

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Doubling up on Oil, betting on VIX dropping

Did covered calls on Oil — bought USO at 37.19, sold-to-open May 37 calls at 1.02 for a net investment of 36.18. Created a bear spread on VIX options today.   Betting on VIX going down is forecasting that the market in general will be flat or positive.  I sold-to-open June VIX 16 calls at 10.26, bought  June  VIX 32.5 calls at 1.88 for a …

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Going short on VIX?

Unlike the S&P 500 or Dow Jones Index, there is no way to directly invest in the VIX index.  I’m sure some really smart people have tried to figure out how to go long or short on this computed volatility index, but there’s just no way to do it directly.  Instead, you have to invest in a security that attempts to track VIX.  None of …

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VIX Option and Futures Expiration Dates

Upcoming expiration dates for monthly VIX options and futures—they expire at market open on the same days can be found here.  The settlement price is not the same as the VIX open price. The settlement price is listed under the VRO ticker and reflects the result of a process (HOSS) managed by the CBOE.  The settlement process involves actual trade prices, not the mid-price quotes …

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