Trading VIX Derivatives: Trading and Hedging Strategies Using VIX Futures, Options, and Exchange
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The current level of the CBOE Volatility Index, or VIX, is part of the litany of information thrown out at a rapid pace on morning business programs. In times of extreme market moves, the VIX gets a bit more attention and possibly a little explanation. That explanation is often that it is a “fear index.” Needless to say, the VIX is much more than an index of fear in the stock market.
The VIX emerged from academic work in the early 1990s as a method of determining a consistent level of implied volatility of option contracts trading on the S&P 100 (OEX) Index at the Chicago Board Options Exchange. For almost a decade, this measure was a side note of market activity.
Then, in the early part of the 2000s, the formula was updated to encompass more option contracts and the focus shifted from the S&P 100 to the S&P 500 index. This update, to include more contracts and focus on the S&P 500, was in preparation to offer derivative contracts on volatility.
Description
A guide to using the VIX to forecast and trade markets
Known as the fear index, the VIX provides a snapshot of expectations about future stock market volatility and generally moves inversely to the overall stock market. Trading VIX Derivatives will show you how to use the Chicago Board Options Exchange’s S&P 500 volatility index to gauge fear and greed in the market, use market volatility to your advantage, and hedge stock portfolios. Engaging and informative, this book skilfully explains the mechanics and strategies associated with trading VIX options, futures, exchange traded notes, and options on exchange traded notes.
Many market participants look at the VIX to help understand market sentiment and predict turning points. With a slew of VIX index trading products now available, traders can use a variety of strategies to speculate outright on the direction of market volatility, but they can also utilize these products in conjunction with other instruments to create spread trades or hedge their overall risk.
- Reviews how to use the VIX to forecast market turning points, as well as reveals what it takes to implement trading strategies using VIX options, futures, and ETNs
- Accessible to active individual traders, but sufficiently sophisticated for professional traders
- Offers insights on how volatility-based strategies can be used to provide diversification and enhance returns
Written by Russell Rhoads, a top instructor at the CBOE’s Options Institute, this book reflects on the wide range of uses associated with the VIX and will interest anyone looking for profitable new forecasting and trading techniques.
