Here are some possible repercussions from the introduction of VIX options, from my vantage point. Again, here’s a short example: Example: These prices existed last May 22nd: $VIX: 18 $VIX front-month futures: 22 $SPX: 1400 Scenario 1: the futures are “correct,” so $VIX rises and $SPX falls. In case you missed the chart we outlined last week, see below. By providing market participants with a mechanism to buy and sell SPX options at the prices that are … Tuesday’s levels to watch:  the Upside Warning would be canceled with a VIX spike above 29.14, and a Downside Warning would take effect with a close at that level. Unless you deltahedge you are short delta. Therefore, buying puts and/or selling calls (call spreads at least) seem to be an appealing strategy. Even if you're expecting the market to break out to the upside, it would appear to make little sense to be a VIX call seller for two reasons: Risk: The convexity of VIX options in the event of a market plunge would far outstrip that of conventional index options. I'd define "normal circumstances" as a period during which the market has been range trading with a slight upside bias and the VIX has been range trading with a slight downside bias, (i.e., the environment of the past two years.). Your longer dated options won't respond to the VIX spot price the same way that longer dated puts would respond in a more typical underlying. However, if you allow ITM long equity or ETF puts to expire, you will wake up Monday with a short stock position, and THAT can have unlimited risk. $33.50. Here you can see more detailed explanation on why you can’t buy or sell a volatility index. The tricky part is in determining how many VIX calls we need to purchase to protect the portfolio. With the huge caveat that much will depend on the pricing of these new VIX options, I would (at least initially) advise against selling VIX calls or buying VIX puts. Zeppelin or the Stones. VIX is now bouncing around 17 to 20, and investors are increasingly buying VIX calls to play the stock market’s next move. Consequently, the VIX call/SPY put conversion ratio is currently: (20*136)/ (85*21) = 1.5. Symbol Name Implied Vol Historical Vol Price Change; VIX: CBOE VOLATILITY INDEX (S&P 500 : 0.852: 1.470: 21.6: 0.95 In case you missed the chart we outlined last week, see below. You can't turn on the business news these days without hearing about the Volatility Index, or VIX. Timing tops is a whole other discussion and I have my own proprietary model, but I'd have to charge to tell people how to spot intra-year tops. An Upside Warning went into effect at the close on November 17. The countdown continues as Kevin and Jeff rank their favorite albums of all time, with picks 80 through 71. Subscribe to The Pick website (we promise it’s only 1 or 2 emails per week): 3. Follow us on: Thank you! Get the basic CBOE Volatility Index (^VIX) option chain and pricing options for different maturity periods from Yahoo Finance. And buying VIX calls may prove to be prohibitively expensive. #Jobs — pace of job growth slows; gains lower than expected / We may also see some significant skews whereby VIX calls are priced much more aggressively than VIX puts. Other than the potential loss of the premium paid. Required fields are marked *. To hedge a portfolio with VIX options, the portfolio must be highly correlated to the S&P 500 index with a beta close to 1.0. Selling VIX puts might prove to be an interesting proposition, as there is no explosive "event risk" that can blow up this trade and the case against a single-digit VIX is a strong one, regardless of future market direction. VIX Option. 16.60. 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