Trading Vix Derivatives: Trading And Hedging Strategies Using Vix Futures, Options, And Exchange Traded Notes

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 skillfully 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.

RUSSELL RHOADS, CFA, is an instructor for the Options Institute at the Chicago Board Options Exchange. He teaches about ninety classes a year and conducts webinars on behalf of the CBOE and a variety of brokerage firms. Rhoads's twenty-year trading career has included positions at a variety of trading firms and hedge funds. His background includes trading and analysis, and he is the author of the Wiley titles Candlestick Charting For Dummies and Option Spread Trading. Rhoads graduated from the University of Memphis with an MS in finance and has a master's certificate in financial engineering from the Illinois Institute of Technology.

Preface.

Acknowledgments.

Chapter 1: Understanding Implied Volatility.

Historical vs. Forward Looking Volatility.

Put-Call Parity.

Estimating Price Movement.

Valuing Options: Pricing Calculators and other Tools.

Fluctuations based on Supply and Demand.

The Impact on Option Prices.

Implied Volatility and the VIX.

Chapter 2: About the VIX Index.

History of the VIX.

Calculating the VIX.

The Non-Mathematical Approach.

The Formula and Calculations.

The VIX and Put-Call Parity.

The VIX and Market Movement.

Equity Market Volatility Indexes.

CBOE DJIA Volatility Index.

CBOE NASDAQ-100 Volatility Index.

CBOE Russell 2000 Volatility Index.

CBOE S&P 100 Volatility Index.

QQQQ Volatility Index.

Chapter 3: VIX Futures.

Steady Growth of New Products.

Contract Specifications.

Mini-VIX Futures.

Pricing Relationship between VIX Futures and the Index.

Futures' Relationship to Each Other.

VIX Futures Data.

Chapter 4: VIX Options.

Contract Specifications.

Relationship to VIX Index.

Relationship to VIX Futures.

VIX Binary Options.

Chapter 5: Weekly Options on CBOE Volatility Index Futures.

Contract Specifications.

Weekly Options and Index Options.

Weekly Option Strategy.

Chapter 6: Volatility Related Exchange Traded Notes.

What are Exchange Traded Notes?

iPath^® S&P 500 VIX Short-Term Futures™ ETN.

iPath^® S&P 500 VIX Mid-Term Futures^™ ETN.

Comparing the VXX and VXZ Performance.

Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures™ ETN.

Barclays ETN+ S&P VEQTOR™ ETNs.

S&P 500 VIX Futures Source ETF.

Chapter 7: Alternate Equity Volatility and Strategy Indexes.

CBOE S&P 500 3-Month Volatility Index^® (VXV^®).

VIX Premium Strategy Index^® (VPD^®).

Capped VIX Premium Strategy Index^® (VPN^®).

S&P 500 VARB-X Strategy Benchmark.

S&P 500 Implied Correlation Index (VTY).

Chapter 8: Volatility Indexes on Alternative Assets.

CBOE Gold Volatility Index^®.

CBOE Crude Oil Volatility Index^®.

CBOE EuroCurrency Volatility Index^®.

CBOE/NYMEX Crude Oil (WTI) Volatility Index.

CBOE/COMEX Gold Volatility Index.

CBOE/CBOT Grain Volatility Indexes.

FX Realized Volatility Indexes.

Chapter 9: The VIX as a Stock Market Indicator.

The Inverse Relationship between the VIX and the S&P 500.

VIX Index as an Indicator.

VIX Futures as an Indicator.

A Modified VIX Futures Contract.

Combining VIX Futures and the VIX Index.

VIX Index and Gold Price Indicator.

VIX Option Put Call Ratio.

Chapter 10: Hedging with VIX Derivatives.

Hedging with VIX Options.

Hedging with VIX Futures.

University of Massachusetts Study.

Chapter 11: Speculating with VIX Derivatives.

VIX Futures Trading.

VIX Option Trading.

VIX ETN Trading.

VXX Relative to the VIX Index.

VXZ Relative to the VIX Index.

Comparing VIX Trading Instruments.

Chapter 12: Calendar Spreads with VIX Futures.

Comparing VIX Futures Prices.

The Mechanics of a Calendar Spread.

Patterns in the Data.

Trade Management.

Other Parameters.

Chapter 13: Calendar Spreads with VIX Options.

VIX Option Pricing.

Calendar Spread with Put Options.

Calendar Spread with Call Options.

Diagonal Spread with Put Options.

Diagonal Spread with Call Options.

Chapter 14: Calendar Spreads with VIX Options and Futures.

Comparing Options and Futures.

Calendar Spread Examples.

Short Call and Long Future.

Long Put and Long Future.

Chapter 15: Vertical Spreads with VIX Options.

Vertical Spread Examples.

Bullish Vertical Spreads.

Bearish Vertical Spreads.

Chapter 16: Iron Condors and Butterflies with VIX Options.

What Is an Iron Condor?

Iron Condor with VIX Options.

What Is an Iron Butterfly?

Iron Butterfly with VIX Options.

Selected Bibliography.

About the Author.

Index.