Hedging the Market using the VIX
Discussion
Nothing to stop you trading VIX.......unless if you are looking for a generic volatility hedge there are other things you can trade too i.e. when the markets are volatile there will generally be a flight to quality so those assets perform well etc etc.
The question of course if how big a position in VIX do you need....that really depends on what you're hedging or what your view is.
The question of course if how big a position in VIX do you need....that really depends on what you're hedging or what your view is.
sideways sid said:
I occasionally write options on VIX as a hedge when I feel things are going a bit mad. Difficult to get a perfect hedge doing it this way, but it can certainly help to smooth losses in periods of high volatility...
Thanks, have you ever opened a VIX position when the VIX is low and effectively just left it there until there's volatility ?No I haven't. Probably a good idea to do so now though.
I sell out of money Put Options on the VIX when its low on the basis that if it falls and I'm exercised against, Calls written on other indices should exceed any losses. If volatility increases, the VIX options expire worthless and the option premium is useful additional income against rising Index Calls i.e. right when you need it.
I'll investigate simply buying the VIX though. I guess the difficulty given the volatility of the VIX itself is timing a sale.
I sell out of money Put Options on the VIX when its low on the basis that if it falls and I'm exercised against, Calls written on other indices should exceed any losses. If volatility increases, the VIX options expire worthless and the option premium is useful additional income against rising Index Calls i.e. right when you need it.
I'll investigate simply buying the VIX though. I guess the difficulty given the volatility of the VIX itself is timing a sale.
Hyper10 said:
sideways sid said:
I occasionally write options on VIX as a hedge when I feel things are going a bit mad. Difficult to get a perfect hedge doing it this way, but it can certainly help to smooth losses in periods of high volatility...
Thanks, have you ever opened a VIX position when the VIX is low and effectively just left it there until there's volatility ?Been looking into this and can't find a way to buy the underlying VIX as the index is non-tradeable and the CFD/Spread-bet companies all seem to quote the forward rather than the underlying. Might not be a problem - just need to fully understand the difference!
I agree that Buying calls might be useful now - especially if part-funded by sold Puts.
The options are traded on CBOE and can be traded with FXCM.
I agree that Buying calls might be useful now - especially if part-funded by sold Puts.
The options are traded on CBOE and can be traded with FXCM.
I'm still looking at this but now as a trade on it's own, given that it's dropping, I'll see how it opens today. My broker is looking at the IG product, not sure of costs and exact details.
If it drops a lot I'm certainly going to have a bit and park it away and wait for a big event.
After considering this, it is not a great market hedge as if we go down the slow death route, the markets perhaps not volatile but it still killing you.
If it drops a lot I'm certainly going to have a bit and park it away and wait for a big event.
After considering this, it is not a great market hedge as if we go down the slow death route, the markets perhaps not volatile but it still killing you.
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