Trading the VIX

Why Trade VIX

VIX is the symbol for CBOE Volatility Index. This page assumes you are already somehow familiar with the VIX, what it is, and (at least the logic of) its calculation.

There are two big groups of motivations why people or institutions trade the VIX:

Trading the VIX for hedging

Many market participants, especially institutional investors, trade VIX to hedge their long stock portfolios. Because stock market volatility tends to rise when stock prices are falling, the VIX Index is strongly negatively correlated to equities. As a hedging tool, VIX derivatives have several advantages over stock index options (e.g. it’s easier to set up and manage a position and you often get the same hedging effect at a lower price with VIX).

Trading the VIX for speculation

In the recent years, in line with increased liquidity and public awareness of VIX Index and its derivatives, VIX has become a convenient pure volatility play, enabling traders to speculate on volatility without having to deal with other exposures (such as delta of stock index options).

VIX Trading Specifics

When trading the VIX, you should be aware of its specifics, which make it quite different from other markets you might be used to:

Trading VIX Futures vs. Options

So which one is better to trade – VIX futures or VIX options? There is no universal answer, as both have advantages and disadvantages. VIX futures contracts may be too big and too volatile (in short – too risky) if you have smaller account size. Options, on the other hand, may seem too complex to understand and analyze (as you are dealing with “volatility squared” here – volatility of volatility). I believe that VIX futures and VIX options go hand in hand and it’s not a good idea to just focus on one and ignore the other. Even when you are only trading VIX options at a moment, knowing what VIX futures are doing is useful (and vice versa).

VIX Trading Strategies

Some sources of edge when trading VIX

Finances News

percentile calculator from mean and standard deviation stats variance formula variance standard deviation calculator how do you compute standard deviation unbiased standard deviation calculator measures of dispersion calculator difference between population variance and sample variance formula for sample mean in statistics examples of mean deviation how to calculate sigma in excel calculating standard deviation from standard error population variance formula excel sigma calculator with steps standard deviation calculator for grouped data standard deviation for grouped data formula root sum square excel excel stdev s excel formulas statistics calculate standard deviation for grouped data sample variance calculation squaring numbers in excel standard deviation for grouped data formula calculating mean and standard deviation in excel average standard deviation calculator finance variance formula what's standard deviation finding population standard deviation difference between sample statistic and population parameter formula for sample mean in statistics harmonic mean formula example shortcut method to calculate square root