iBankCoin
Joined Jan 1, 1970
204 Blog Posts

On Those VIX Derivatives

OK, I will say it for the umpteenth time; don’t play the VIX options unless you understand them. And even then, don’t play them. They are an incredibly tricky product and not designed for anything the 99.9% of us who don’t manage large derivatives desks really need.

I saw this in a comment in a Slope of Hope thread.

VIX , none of the JUNE options look they are priced right. Maybe next week VIX JUNE calls will be lower priced.

Trust me, I do not blame or seek to mock the commenter one iota for this. I saw essentially the same misconception from an options “expert” yesterday.

But no, VIX June options are priced correctly, they just align with the VIX June future, NOT the actual VIX. And they are European exercise.

Volatility always assumes mean reversion, often incorrectly. Right now, with options baked, mean reversion assumes the VIX goes higher. So ergo all VIX futures trade at premiums to the actual VIX. And since options price off the futures, all June calls seem too high to the naked eye, and all June puts seem too low.

Again, if you consider the market too high and/or volatility too low and want to fade “cheap” options into the morass, use options on actual stocks/indices/ETF’s. My personal preference right now is something that expires in the Fall.

If you enjoy the content at iBankCoin, please follow us on Twitter

14 comments

  1. alphadawgg

    Good post.

    I would rather take my chances playing “piss off the snakes on a plane”, then to play with VIX options.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  2. Adam

    lmao, I would agree. Or maybe that 3-headed dog in Harry Potter.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  3. ZenProfit

    And I thought I was just too stoopid to understand what they were.

    Thanks for the clarification. I will let the Najarian’s play with them. I am not Armenian.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  4. Adam

    lol, don’t fret it, they really are tricky in all sorts of ways.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  5. alphadawgg

    Zen–
    Are you implying that Armenians understand convoluted options contracts better than the rest of us?

    Is that because it’s a “zen” thing?

    Just asking……

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  6. JakeGint

    Dawg — are you of the lineage marked by “ian” at the end of your name?

    I think Zen was paying a compliment, and I would agree.

    I have yet to meet an “unshrewd” Armenian bidnessman.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  7. JakeGint

    Confused? An Armenian shows how it’s done:

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  8. alphadawgg

    Jake, not an “ian”. For a while in college, I dated a gorgeous little hottie with “ian” at the end of her name.

    The most striking thing about her was her long silky dark hair, and her understanding of European style options contacts and derivatives.

    A good friend of mine is an “-ian”. Great athlete in high school and college. He played linebacker at a semi-famous school in NE. So did one of his sons. He didn’t know diddly about options, though.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  9. JakeGint

    I rassled with an Armenian heritaged kid in high school who I later got to be great friends with… he’s now that Bologna King of Dallas, TX. Still a Giant fan, though.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  10. adam

    Glad there’s Giants fans in Dallas, too many f***ing Dallas fans here,

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  11. JakeGint

    Adam — are you in Dallas?

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  12. Adam

    here in New Jersey I mean.

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  13. JakeGint

    Dallas fans? In Jersey?

    Apostasy!

    • 0
    • 0
    • 0 Deem this to be "Fake News"
  14. Adam

    Yeah really.

    • 0
    • 0
    • 0 Deem this to be "Fake News"