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Awesome video, exactly what I needed to see 😂 Here I am with the VIX at around 12, thinking I could put on a long term call ratio backspread for no cost, because “of course the VIX will go up from here”. I needed to properly understand how the futures price doesn’t fluctuate as much with the spot. Thanks 🙏
This is very helpful. Thanks a lot. I was just trying to fig out why long term VIX options do not change much when Vix goes up. And your vedio explained everything. Now I know how to better use it to hedge for long tail risks
For a call option on INTC with strike 30 I have the right to buy 100 shares at $30. What is the interpretation for the VIX option? How is the profit calculated? Could you give an example? thank you
Hey Chris! Just looking for you to confirm something here. Short-term VIX options are more sensitive to underlying prices changes due to their higher gamma exposure, right?
Great video. I have a CBOE vix sept 22 2021 $16 call option. If I do nothing and let this option expire, I will receive a profit (assuming vix future is greater then the $16 dollar strike price) and it will automatically added to my account. Correct? If that is true then there would not be urgency to sell my call option on the final day of the contract. Also, does trading end at 3pm central time on the expiration date of the contract?
I’m a bit confused. If we take example today ... VIX future is 41.1, VIX index is 41.67. Would I buy future for 41.1 and use index strike price 45 to buy call for 1.9 and sell put for 5.4? I will collect $350 premium and hold future contract for 41.1. If we close at $35 I will have -$610 loss on future, +$350 premium collected or -$260 loss? Not sure if I understood correctly the game plan.
I am not sure what you are trying to do with the options. If you can clarify that would be great. On your futures trade though, you would have a $6,100 loss on the future. VIX futures are $1,000 a point. If you buy a VIX future at 41.10 and it falls to 35.00, you'll lose 6.1 points for a loss of $6,100.
When you explained risk free trade using VIX futures and synthetic long position with options ... what that trade would look like at today’s price? Does that opportunity even exist? I tried to do math but can’t figure it out. Understood that futures and options are 1x10 relationships.
I'm not sure what I was saying. This video is old and I need to rewatch. There is no risk-free trade that can be setup at entry. The only way to get a risk-free trade is to leg into the two offsetting positions. I'll watch this again and get back to you.
I was explaining an example of why VIX options are priced to VIX futures, and the natural forces that keep their prices in-line with one another. I was saying that if the January VIX future was at 15.00 but a synthetic VIX stock position had a basis of 20.00, there's an arbitrade/risk-free profit opportunity. Specifically, the trade would be: Buy the January VIX future at 15. Sell the 15 JAN VIX call and buy the 15 JAN VIX put simultaneously and with 10x contracts (buy 10x JAN 15 VIX calls, sell 10x JAN 15 VIX puts for a $5.00 credit). The basis of the synthetic short VIX is 20.00 (15 strike price + $5.00 credit at entry). But I bought the VIX future for 15.00, which means I guarantee a $5,000 gain. This is a hypothetical example. The prices would never deviate so much in the real markets. If it did present itself, VIX futures would get purchased and synthetic VIX positions would get sold. The buying/selling pressure in both of these positions would lead to a convergence in their prices, therefore eradicating the arbitrage opportunity. I was using this hypothetical scenario to explain why there are no price deviations between VIX futures and the options. Right now the April VIX future is 41.10 and the short APR synthetic VIX position at the 40 strike (sell the 40 call, buy the 40 put in APR) has a credit of $1.35 at the mid-price. Therefore, the basis on that short synthetic is 41.35, which is very close to the 41.10 price of the APR VIX future. The $0.25 price discrepancy is likely due to the bid/ask and also that the market is closed.
Do not worry about the complexity of these examples. All you need to know is that VIX options/futures are not incorrectly priced in relation to one another.
Hi AM, I am not sure what you mean specifically by the arb opportunity based on that slide. What is the arbitrage opportunity you're seeing? In any case, I don't think arbitrage opportunities really exist for retail traders. Arbitrage opportunities are typically taken advantage of by algorithmic traders, and the arbitrage profits amount to pennies or even fractions of pennies. When repeated hundreds/thousands of times in a short period of time, the profits add up. However, for the everyday trader with standard brokerage commissions, any arbitrage trades would likely be losses after commissions. I hope this helps. -Chris
Sometimes, but the commission makes it impossible to profit.. I know there is a website out there that tracks this stuff and the membership is a bit high. I think some traders out there are pretty big... kinda scary if you think about it..
✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf
Awesome video, exactly what I needed to see 😂 Here I am with the VIX at around 12, thinking I could put on a long term call ratio backspread for no cost, because “of course the VIX will go up from here”. I needed to properly understand how the futures price doesn’t fluctuate as much with the spot. Thanks 🙏
This is very helpful. Thanks a lot. I was just trying to fig out why long term VIX options do not change much when Vix goes up. And your vedio explained everything. Now I know how to better use it to hedge for long tail risks
For a call option on INTC with strike 30 I have the right to buy 100 shares at $30. What is the interpretation for the VIX option? How is the profit calculated? Could you give an example? thank you
Hey Chris! Just looking for you to confirm something here.
Short-term VIX options are more sensitive to underlying prices changes due to their higher gamma exposure, right?
Very good vid. Vix got me out of some jams. Such as those end of the day falls. Not enough time to do anything!
Chris, how long have you been trading options? Project option has great videos.
I've been trading options for nearly 5 years now.
Thanks for the comment!
What's the math behind why long options are less sensitive?
The implied volatility ramps up the further out you go.
Why is VRO settlement price always above the VIX settlement price?
I get what you're saying about lower return on long term vix options; but does this apply to long term calls on a short term futures VIX ETN? (VXX)?
Great video. I have a CBOE vix sept 22 2021 $16 call option. If I do nothing and let this option expire, I will receive a profit (assuming vix future is greater then the $16 dollar strike price) and it will automatically added to my account. Correct? If that is true then there would not be urgency to sell my call option on the final day of the contract. Also, does trading end at 3pm central time on the expiration date of the contract?
Many thxs.
You're welcome!
I’m a bit confused. If we take example today ... VIX future is 41.1, VIX index is 41.67. Would I buy future for 41.1 and use index strike price 45 to buy call for 1.9 and sell put for 5.4? I will collect $350 premium and hold future contract for 41.1. If we close at $35 I will have -$610 loss on future, +$350 premium collected or -$260 loss? Not sure if I understood correctly the game plan.
I am not sure what you are trying to do with the options. If you can clarify that would be great. On your futures trade though, you would have a $6,100 loss on the future. VIX futures are $1,000 a point. If you buy a VIX future at 41.10 and it falls to 35.00, you'll lose 6.1 points for a loss of $6,100.
When you explained risk free trade using VIX futures and synthetic long position with options ... what that trade would look like at today’s price? Does that opportunity even exist? I tried to do math but can’t figure it out. Understood that futures and options are 1x10 relationships.
I'm not sure what I was saying. This video is old and I need to rewatch. There is no risk-free trade that can be setup at entry. The only way to get a risk-free trade is to leg into the two offsetting positions. I'll watch this again and get back to you.
I was explaining an example of why VIX options are priced to VIX futures, and the natural forces that keep their prices in-line with one another. I was saying that if the January VIX future was at 15.00 but a synthetic VIX stock position had a basis of 20.00, there's an arbitrade/risk-free profit opportunity.
Specifically, the trade would be: Buy the January VIX future at 15. Sell the 15 JAN VIX call and buy the 15 JAN VIX put simultaneously and with 10x contracts (buy 10x JAN 15 VIX calls, sell 10x JAN 15 VIX puts for a $5.00 credit). The basis of the synthetic short VIX is 20.00 (15 strike price + $5.00 credit at entry). But I bought the VIX future for 15.00, which means I guarantee a $5,000 gain. This is a hypothetical example. The prices would never deviate so much in the real markets. If it did present itself, VIX futures would get purchased and synthetic VIX positions would get sold. The buying/selling pressure in both of these positions would lead to a convergence in their prices, therefore eradicating the arbitrage opportunity.
I was using this hypothetical scenario to explain why there are no price deviations between VIX futures and the options.
Right now the April VIX future is 41.10 and the short APR synthetic VIX position at the 40 strike (sell the 40 call, buy the 40 put in APR) has a credit of $1.35 at the mid-price. Therefore, the basis on that short synthetic is 41.35, which is very close to the 41.10 price of the APR VIX future. The $0.25 price discrepancy is likely due to the bid/ask and also that the market is closed.
Do not worry about the complexity of these examples. All you need to know is that VIX options/futures are not incorrectly priced in relation to one another.
Good video.
Thank you!
8:12 ... do this arbitrage opportunities happen often?
Hi AM,
I am not sure what you mean specifically by the arb opportunity based on that slide.
What is the arbitrage opportunity you're seeing?
In any case, I don't think arbitrage opportunities really exist for retail traders. Arbitrage opportunities are typically taken advantage of by algorithmic traders, and the arbitrage profits amount to pennies or even fractions of pennies. When repeated hundreds/thousands of times in a short period of time, the profits add up.
However, for the everyday trader with standard brokerage commissions, any arbitrage trades would likely be losses after commissions.
I hope this helps.
-Chris
Sometimes, but the commission makes it impossible to profit.. I know there is a website out there that tracks this stuff and the membership is a bit high. I think some traders out there are pretty big... kinda scary if you think about it..
Based on this it would seem a “sure thing” would be when Vic peaks very high to sell a 300 days out OTM put and buy it back when vix is very low?
Michael Kiteboarder if it is that far out, it won’t sell for much premium. Remember Vix options are based on futures for the same expiration date.
how about forex trading any videos