Monday, March 5, 2007

Long Volatility with the Exchanges

In the rush to capitalize on the sudden volatility in the markets, many have jumped in to buy VIX calls not fully realizing what they were getting in to. Adam Warner summarizes Barron’s take on some of the shortcomings of VIX options as an investment vehicle and reiterates his own perspective, which is essentially that the more sensible and direct play is SPY options. For the record, I am in agreement here and have stated some other reasons why VIX options may not be appropriate for all by the most experienced options traders.

Here is another way to play volatility without even resorting to options or ETFs: the exchanges. CME just reported record options volume in February and will likely continue to be a beneficiary as concerns about increased risk and volatility create new demand for derivatives to reduce risk and volatility going forward. This morning, CME is down more than 50 points from the January high of 596.

Another options exchange play is ISE. This smaller electronic options exchange had a strong February, but has more question marks than its larger rivals. ISE is down about 12% since February 23rd and may be an attractive takeover target.


Fontimama said...

Excellent post! I had someone ask me about VIX options this weekend and I sent them to your site! I'm glad I did that. I will find a way to link to this article from my site in the coming hours/day as I have had several people ask me about this issue recently. Like you, i prefer SPY/IWM/QQQQ puts in low volatility environment.

Bill Luby said...

It is good to have your support and encouragement, Lauriston. Also, I hope someone else here got in on the CME action this morning...

Adam said...


And glad we agree.

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