fbpx The Under-Appreciated Weekly $VIX Futures and Options (Preview) | Option Strategist

The Under-Appreciated Weekly $VIX Futures and Options (Preview)

By Lawrence G. McMillan

Many volatility traders – we are among them – complained about the lack of response by volatility derivatives during last fall’s market decline.  That was especially true in the downward thrust in December.  $VIX itself managed to put together a decent move, as it rose from 16 in early December to 36 on Christmas Eve.  But one cannot trade $VIX; only the $VIX derivatives are available for trading.  

The $VIX January futures were far less responsive.  They began December with a premium to $VIX of about 1 point on December 3rd ($VIX was 16.44; Jan $VIX futures were 17.37).  Immediately, as soon as the market began to fall and $VIX began to rise, these futures dropped to a discount.  And that discount just kept getting larger as the market declined.  By December 24th, when $VIX closed at 36.07, these Jan $VIX futures had only risen to 25.90.

The following table summarizes this action, including that of the Feb $VIX futures. $SPX lost 15.7% from the December 3rd close to the December 24th close – 14 trading days (the market was closed on December 5th in memory of President G.H.W. Bush)... 

Read the full article, published on 3/15/2019, by subscribing to The Option Strategist Newsletter now. 

The Option Strategist Newsletter $29 trial

Share this

Option Strategist
Blog Search

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
Visit the Disclosure & Policies page for full website disclosures.