Skip to content

VIX/VIX Futures Spread

The gap between VIX futures and the VIX index has been moving into unchartered territory.  The spread between the front month VIX futures and the index has hit a record level.  The trade that should work in this situation is to go long March calls and puts, delta hedge the options, and short the March VIX future’s contract vega neutral.  A bit difficult to implement, which is probably why the spread persists – along with the fact that traders and investors are getting long volatility through the futures market in anticipation of a possible market correction.

Record spread

Be Sociable, Share!

Posted in Derivatives, Media, Trading Ideas.

Tagged with , .

3 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

  1. Frank says

    I trade vix future spreads and of course im banking on certain months to curve down like march did to april..i will note that the etn’s are definately messing with the curve and although there is record contango i still believe athe term structure will flatten by a few points. It may happen from the farthest back futures coming in. Your thoughts?

  2. Sam says

    March VIX futures are a bet on VIX at March expiry, i.e. the price of options expiring post-March, so buying March calls & puts isn’t a hedge… This is a common misunderstanding, I think.

  3. SurlyTrader says

    You are correct that VIX futures is a bet on the VIX on the morning of the date of the contract expiration. Trading April options would be a better choice if holding the futures contract to expiration.

Some HTML is OK

or, reply to this post via trackback.

Get Adobe Flash player
Copyright © 2009-2013 SurlyTrader DISCLAIMER The commentary on this blog is not meant to be taken as an investment advice. The author is not a registered investment adviser. There is no substitute for your own due diligence. Please be aware that investing is inherently a risky business and if you chose to follow any of the advice on this site, then you are accepting the risks associated with that investment. The Author may have also taken positions in the stocks or investments that are being discussed and the author may change his position at any time without warning.

Yellow Pages for USA and Canada SurlyTrader - Blogged