Last day to trade vix options
Volatility is back on the table. After one of the most muted years on record, with the VIX—the Chicago Board Options Exchange CBOE volatility index—hitting record lows, August has seen an last day to trade vix options numbers of spikes in volatility coupled with a seemingly large amount of pre-positioning for rising volatility. But trading volatility is no simple matter.
Getting exposure to an index like the VIX remains challenging and views on trading it are mixed. So what should an investor seeking to exploit this benchmark be aiming to do? The popularity last day to trade vix options trading volatility has never been higher. Futures and options volumes on the VIX have been skyrocketing in The current year has already recorded four of the ten all-time busiest trading days in VIX futures, while both options and futures had their busiest ever trading day in August.
Undoubtedly the major trade of the year has been shorting volatility. The interest in this comes against a background of unusually low levels of the VIX. The index, which remains the most looked-at gauge of volatility in the market, has been hovering around 12 for much of the year—compared to the average of around 16 last year—and dropped to historical lows of 9.
The low levels have puzzled some commentators given the potential for turbulence from recent macro and political events. You would think the instability would kick off the VIX. Instead of being at new lows it should be at new highs. Others believe the VIX has been a reflection of the slow and staid underlying financials of the global economy and the lack of action on interest rates that has characterised financial markets for the better part of a decade now.
It is currently a Goldilocks economy, but we could be near the end of it. In any respect the continued decline of volatility has provided a goldmine for investors pursuing the short volatility trade. Spikes have been followed by a sharp move back down as short sellers have come in to dampen volatility levels, rather than seeing the heightened risk reaction more typical in the past. It is a contrast to going long volatility in expectation of it rising. But while volatility has bounced along at historical lows a confluence of factors has revived fears the market could turn in the third quarter.
Last day to trade vix options, it is the fear of heightened volatility that appears to be one of the most urgent motivators for trading. And the jump in derivatives trading volumes were even more striking. The day sawVIX futures traded—trouncing the previous record ofin The fear of rising volatility has prompted unusual trades in the market. Yet, despite the returning fear in the market, getting perfect exposure to the Last day to trade vix options remains a tricky challenge. Harvest Volatility Management, one of the larger pure volatility funds in the market, has been a seller of volatility this year—but not using VIX options or futures.
That is the deepest and most liquid market so the liquidity cost is minimal. Rolling down the VIX curve can be tricky.
The VIX takes the delta component out of the equation but VIX derivatives are less liquid and more able to be manipulated. VIX is a reference for us not a driver.
Stefan Rondorf, senior investment strategist at Allianz Global Investors, agrees: Using rolling VIX futures creates a negative cost of carry as forward months are priced higher than near months meaning investors have to pay more to roll over their positions from month to month.
At the same time the futures contract will only imperfectly track the underlying VIX index. There are other ways to trade the VIX. The aforementioned ETNs have been popular in recent years—though these are potentially even less efficient then trading the futures contract.
These products are forced to buy more as it gets higher. We have not seen the full effect of these, right now they are still small. The issues with the VIX have led to participants calling on use of other benchmarks as a better gauge last day to trade vix options volatility.
It is relevant because it seems that the volatility trade could get even busier later this year. It is likely to be an interesting time making the right instrument choice all the more important. To trade or not to trade?