Wednesday, February 28, 2007

Four Ways to Play VIX Options Following a Record 64% Move to 18.31

Not so much recommendations as strategies to think about. I guarantee pricing on these and other strategies will change a great deal during the day, but looking at yesterday’s close and not taking into consideration this morning’s futures:

  • Bear put spread (ITM) – long the March 18s and short the 15s or 16s

  • Bear call spread (ATM) – short the March 17s or 18s and long the 20s or 22.5s

  • Outright purchase of puts (ITM) – March 22.5s or 25s

  • Short calendar spread (ATM) – short the March puts, long the April puts (probably the 18s or 20s)

Note that the suggested action targets March because reversion to the mean is a much better bet for the next 10-20 trading days than for April and beyond.

This presumes you have read my caveats from earlier. If you haven’t, I highly recommend that you do. If the caveats haven’t sufficiently dampened your enthusiasm for VIX options, then before making any trades I suggest you think about how Brian Overby at TradeKing compares VIX options to predicting the weather four months in advance based on current weather patterns.

Good trading!

0 comments:

DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2023 Bill Luby. All rights reserved.
 
Web Analytics