# VIX question



## kenw232 (May 9, 2010)

I can buy the VIX like a stock correct? If so why is there no volume for it?


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## james4beach (Nov 15, 2012)

There are a few ETNs that aim to mimic VIX, so yes it is possible to buy it like a stock. I don't know the ticker symbols off hand.

However, beware that these are "financial engineering" vehicles. In some cases, the vehicles don't have any underlying assets and are actually an unsecured debt note from an investment bank. In other cases, the vehicles are based on VIX futures, which itself are difficult to define as far as 'intrinsic value'. You should probably have expertise in futures before doing this.

In short: yes you can buy something, but it's very difficult to figure out what exactly you're buying. Also they may not perform as you expect; these are tricky.

Article: VIX Creator Shocked, Appalled at Volatility ETFs

Personally I recommend avoiding all 'exotic ETFs' as they are very complex to understand.


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## swoop_ds (Mar 2, 2010)

I have traded VXX and UVXY short term. I don't recommend holding for any long period of time. I also found that trading these sorts of things required more babysitting than I liked so I don't do it anymore.


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## andrewf (Mar 1, 2010)

You absolutely cannot buy VIX. VIX is an index that has no readily tradeable security tracking it. You can buy/sell VIX *futures*, which track the VIX to some degree, but will not over time offer returns similar to changes in VIX level. It's easy to understand why, because it would be trivial to buy such a security, wait for VIX to double (it will, at some point) and sell for a hefty profit.

Trading in VIX futures securities (like the laundry list of ETFs/ETNs VXX, UVXY, XIV, ZIV, etc.) is more about playing off contango/backwardation in the futures market for VIX against short-term changes in the levels of the VIX.

Personally, I would never own long VIX futures positions. Just look at a chart of VXX since inception to understand why.


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## james4beach (Nov 15, 2012)

andrewf is right.

The funny thing here is that it superficially _looks_ like a straightforward action (buy the VIX) but it's absolutely not what's happening. If you dabble in those securities, you won't be doing what you think you're doing.

I have some experience trading VIX futures options. I was trying to be very careful with them, but I still had no clue what was happening and quickly abandoned them. Honestly -- they are too abstract. What does "long VIX futures" really represent? This is far from obvious. Don't even touch them unless you're an expert in the futures market.


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## gibor365 (Apr 1, 2011)

swoop_ds said:


> I have traded VXX and UVXY short term. I don't recommend holding for any long period of time. I also found that trading these sorts of things required more babysitting than I liked so I don't do it anymore.


I traded XIV (reverse of VIX) several years ago... and I don't really agree about "short term"... I've read so much about this "short term" that I got scared and sold XIV with small loss (it was just below $10) , than XIV claimed to $48 and now $28.76 ... just should've wait....


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## james4beach (Nov 15, 2012)

Just beware that XIV is an ETN - an exchange traded note. That means it's nothing more than an (unsecured) debt to the issuer. It has no net asset value; there are no assets at all underlying it.

When you buy XIV, you are lending money to Credit Suisse. If the foreign bank Credit Suisse becomes insolvent, or even it becomes border-line insolvent and decides to break its obligations to re-pay XIV holders, then you will see the price of this go to $0 in an instant.

The money you lend to Credit Suisse via XIV *can be used for any purpose by Credit Suisse*. It can be used for hyperleveraged derivatives trading; it can be used for junk bond speculation; it can be used to pay fines they must pay to regulators.

It's vital that you understand that by holding XIV, you do not own any assets. In case of their bankruptcy, you can not recoup anything.


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## kenw232 (May 9, 2010)

Can I buy calls against the VIX? Reading stuff like this says its possible:
http://www.theoptionsguide.com/portfolio-hedging-using-vix-calls.aspx


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## Rusty O'Toole (Feb 1, 2012)

When the VIX is high I sell call spreads and wait for volatility to regress to the mean. So far have not had a losing trade. 

Yes you can buy a call and sell a put. This would make a synthetic long position. But remember you would have a lot of risk to the down side.


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## Rusty O'Toole (Feb 1, 2012)

The VIX is a purely theoretical number. There is no VIX stock or underlying. But, there are futures and options and other artificial instruments meant to mimic the VIX.


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## kenw232 (May 9, 2010)

I'm confused on buying VIX calls. I read that options against the VIX are not tracking the VIX, but instead they track the futures market (VX I guess). How does anyone buy a VIX call accurately then? So a strike price last week on the VIX of 23, which is hit roughly, is not valid? I'm confused, VIX options are not VIX options at all? 

And I also read VIX options cannot be sold before hand? It's like the European ones or whatever. So if I bought June calls with a strike price of 30 and the VIX hit 30 in March I can't sell the calls and cash out ahead of time. I have to wait until the expiry date of June X to see if I made money. Is this true too? And if so what VIX style ETF can I trade that doesn't have this European style problem.


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## Rusty O'Toole (Feb 1, 2012)

I have never had trouble buying and selling VIX puts and calls at any time the market is open.

VIX options track the VIX which is short for CBOE Market Volatility Index. This is the "underlying" so to speak, even though it is a theoretical number not an actual stock. The options are cash settled, there is no underlying.

As you say there are ETFs that also attempt to track the VIX but that is another security altogether.

The VIX options are 10 cents wide in the front month ATM which is not bad. They are liquid and have good volume and OE. If you want to play volatility they are the way to go.

Right now I am short 20 Feb VIX call spreads which are coming in nicely, I expect to buy them back for a good profit in a few days. Suggest you stick to call spreads or put spreads, and especially don't sell naked options in the VIX because it can move against you fast.


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## kenw232 (May 9, 2010)

So your going to exercise the puts and buy them back before expiry which is possible then correct? I see from a site like http://www.theoptionsguide.com/vix-option.aspx it says "VIX options are european style options and hence can only be exercised on the expiration date." towards the top there. I'm still confused. If I buy some calls like I said, can I sell/exercise them before expiry if I get lucky and bank some value before the expiry date/month?


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## james4beach (Nov 15, 2012)

As I posted upthread, I did trade VIX options at one point. They did not end up behaving as I would expect; they were very non-intuitive.

I abandoned them once I realized that I don't understand what they really represent.

If you want to go long volatility, you may want to just simultaneously buy SPY calls and puts (with a leaning towards puts -- since that's how VIX behaves) when implied volatility is low. As implied volatility rises, so will the option value. Of course, it decays at the same time. You can use your real-time black scholes calculator operating at millisecond granularity to effectively trade this against all the other market participants who are using millisecond granularity black scholes computers.

The above was a tongue-in-cheek way of saying, these things are bad ideas because you're trading against powerful market makers who can calculate this much better than you can.


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## Rusty O'Toole (Feb 1, 2012)

You can buy and sell VIX calls and puts any time the markets are open. You can't exercise them because there is nothing to exercise. Exercise means to buy or sell the underlying. With VIX there is no underlying so you can't buy or sell it.

They are settled in cash at expiration. Hope this is clear.

I usually sell a call spread either at the money or out of the money with a month to six weeks to expiration. When vol is high. Expecting to buy it back cheap in a few days as vol collapses. 

I have never exercised one and don't want to. What would I do with a big pile of volatility?


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