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 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.
Inhoudsopgave
Preface xiii
Acknowledgments xv
CHAPTER 1 Understanding Implied Volatility 1
Historical versus Forward-Looking Volatility 1
Put-Call Parity 4
Estimating Price Movement 6
Valuing Options: Pricing Calculators and Other Tools 6
Fluctuations Based on Supply and Demand 9
The Impact on Option Prices 13
Implied Volatility and the VIX 14
CHAPTER 2 About the VIX Index 15
History of the VIX 15
Calculating the VIX 17
The VIX and Put-Call Parity 18
The VIX and Market Movement 22
Equity Market Volatility Indexes 24
CHAPTER 3 VIX Futures 31
Steady Growth of New Products 31
Contract Specifications 33
Mini-VIX Futures 42
Pricing Relationship between VIX Futures and the Index 42
Futures’ Relationship to Each Other 46
VIX Futures Data 47
CHAPTER 4 VIX Options 49
Contract Specifications 51
Relationship to VIX Index 56
Relationship to VIX Futures 57
VIX Binary Options 58
CHAPTER 5 Weekly Options on CBOE Volatility Index Futures 61
Contract Specifications 62
Weekly Options and Index Options 63
Weekly Option Strategy 65
CHAPTER 6 Volatility-Related Exchange-Traded Notes 69
What are Exchange-Traded Notes? 69
i Path S&P 500 VIX Short-Term Futures ETN 70
i Path S&P 500 VIX Mid-Term Futures ETN 73
Comparing the VXX and VXZ Performance 76
Barclays ETN+ Inverse S&P 500 VIX Short-Term
Futures ETN 80
Barclays ETN+ S&P VEQTOR ETN 82
S&P 500 VIX Futures Source ETF 82
CHAPTER 7 Alternate Equity Volatility and Strategy Indexes 83
CBOE S&P 500 3-Month Volatility Index (VXV) 83
VIX Premium Strategy Index (VPD) 88
Capped VIX Premium Strategy Index (VPN) 90
S&P 500 VARB-X Strategy Benchmark 93
S&P 500 Implied Correlation Index 95
CHAPTER 8 Volatility Indexes on Alternative Assets 99
CBOE Gold Volatility Index 100
CBOE Crude Oil Volatility Index 102
CBOE Euro Currency Volatility Index 104
CBOE/NYMEX Crude Oil (WTI) Volatility Index 107
CBOE/COMEX Gold Volatility Index 107
CBOE/CBOT Grain Volatility Indexes 109
FX Realized Volatility Indexes 109
CHAPTER 9 The VIX as a Stock Market Indicator 113
The Inverse Relationship between the VIX and the S&P 500 114
VIX Index as an Indicator 115
VIX Futures as an Indicator 118
A Modified VIX Futures Contract 121
Combining VIX Futures and the VIX Index 122
VIX Index and Gold Price Indicator 124
VIX Option Put-Call Ratio 127
CHAPTER 10 Hedging with VIX Derivatives 133
Hedging with VIX Options 133
Hedging with VIX Futures 143
University of Massachusetts Study 147
CHAPTER 11 Speculating with VIX Derivatives 149
VIX Futures Trading 150
VIX Option Trading 153
VIX ETN Trading 161
Comparing VIX Trading Instruments 166
CHAPTER 12 Calendar Spreads with VIX Futures 169
Comparing VIX Futures Prices 170
The Mechanics of a Calendar Spread 175
Patterns in the Data 178
Trade Management 189
Other Parameters 193
CHAPTER 13 Calendar Spreads with VIX Options 195
VIX Option Pricing 195
Calendar Spread with Put Options 196
Calendar Spread with Call Options 205
Diagonal Spread with Put Options 209
Diagonal Spread with Call Options 212
CHAPTER 14 Calendar Spreads with VIX Options and Futures 217
Comparing Options and Futures 217
Calendar Spread Examples 219
CHAPTER 15 Vertical Spreads with VIX Options 229
Vertical Spread Examples 229
CHAPTER 16 Iron Condors and Butterflies with VIX Options 251
What is an Iron Condor? 251
Iron Condor with VIX Options 255
What Is an Iron Butterfly? 257
Iron Butterfly with VIX Options 261
About the Author 265
Index 267
Over de auteur
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.
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