Trading VIX Derivatives – Trading and Hedging Strategies Using VIX Futures, Options, and Exchange Traded Notes

Preface xiii
<p>Acknowledgments xv</p>
<p>CHAPTER 1 Understanding Implied Volatility 1</p>
<p>Historical versus Forward–Looking Volatility 1</p>
<p>Put–Call Parity 4</p>
<p>Estimating Price Movement 6</p>
<p>Valuing Options: Pricing Calculators and Other Tools 6</p>
<p>Fluctuations Based on Supply and Demand 9</p>
<p>The Impact on Option Prices 13</p>
<p>Implied Volatility and the VIX 14</p>
<p>CHAPTER 2 About the VIX Index 15</p>
<p>History of the VIX 15</p>
<p>Calculating the VIX 17</p>
<p>The VIX and Put–Call Parity 18</p>
<p>The VIX and Market Movement 22</p>
<p>Equity Market Volatility Indexes 24</p>
<p>CHAPTER 3 VIX Futures 31</p>
<p>Steady Growth of New Products 31</p>
<p>Contract Specifications 33</p>
<p>Mini–VIX Futures 42</p>
<p>Pricing Relationship between VIX Futures and the Index 42</p>
<p>Futures Relationship to Each Other 46</p>
<p>VIX Futures Data 47</p>
<p>CHAPTER 4 VIX Options 49</p>
<p>Contract Specifications 51</p>
<p>Relationship to VIX Index 56</p>
<p>Relationship to VIX Futures 57</p>
<p>VIX Binary Options 58</p>
<p>CHAPTER 5 Weekly Options on CBOE Volatility Index Futures 61</p>
<p>Contract Specifications 62</p>
<p>Weekly Options and Index Options 63</p>
<p>Weekly Option Strategy 65</p>
<p>CHAPTER 6 Volatility–Related Exchange–Traded Notes 69</p>
<p>What are Exchange–Traded Notes? 69</p>
<p>iPath S&amp;P 500 VIX Short–Term Futures ETN 70</p>
<p>iPath S&amp;P 500 VIX Mid–Term Futures ETN 73</p>
<p>Comparing the VXX and VXZ Performance 76</p>
<p>Barclays ETN+ Inverse S&amp;P 500 VIX Short–Term</p>
<p>Futures ETN 80</p>
<p>Barclays ETN+ S&amp;P VEQTOR ETN 82</p>
<p>S&amp;P 500 VIX Futures Source ETF 82</p>
<p>CHAPTER 7 Alternate Equity Volatility and Strategy Indexes 83</p>
<p>CBOE S&amp;P 500 3–Month Volatility Index (VXV) 83</p>
<p>VIX Premium Strategy Index (VPD) 88</p>
<p>Capped VIX Premium Strategy Index (VPN) 90</p>
<p>S&amp;P 500 VARB–X Strategy Benchmark 93</p>
<p>S&amp;P 500 Implied Correlation Index 95</p>
<p>CHAPTER 8 Volatility Indexes on Alternative Assets 99</p>
<p>CBOE Gold Volatility Index 100</p>
<p>CBOE Crude Oil Volatility Index 102</p>
<p>CBOE EuroCurrency Volatility Index 104</p>
<p>CBOE/NYMEX Crude Oil (WTI) Volatility Index 107</p>
<p>CBOE/COMEX Gold Volatility Index 107</p>
<p>CBOE/CBOT Grain Volatility Indexes 109</p>
<p>FX Realized Volatility Indexes 109</p>
<p>CHAPTER 9 The VIX as a Stock Market Indicator 113</p>
<p>The Inverse Relationship between the VIX and the S&amp;P 500 114</p>
<p>VIX Index as an Indicator 115</p>
<p>VIX Futures as an Indicator 118</p>
<p>A Modified VIX Futures Contract 121</p>
<p>Combining VIX Futures and the VIX Index 122</p>
<p>VIX Index and Gold Price Indicator 124</p>
<p>VIX Option Put–Call Ratio 127</p>
<p>CHAPTER 10 Hedging with VIX Derivatives 133</p>
<p>Hedging with VIX Options 133</p>
<p>Hedging with VIX Futures 143</p>
<p>University of Massachusetts Study 147</p>
<p>CHAPTER 11 Speculating with VIX Derivatives 149</p>
<p>VIX Futures Trading 150</p>
<p>VIX Option Trading 153</p>
<p>VIX ETN Trading 161</p>
<p>Comparing VIX Trading Instruments 166</p>
<p>CHAPTER 12 Calendar Spreads with VIX Futures 169</p>
<p>Comparing VIX Futures Prices 170</p>
<p>The Mechanics of a Calendar Spread 175</p>
<p>Patterns in the Data 178</p>
<p>Trade Management 189</p>
<p>Other Parameters 193</p>
<p>CHAPTER 13 Calendar Spreads with VIX Options 195</p>
<p>VIX Option Pricing 195</p>
<p>Calendar Spread with Put Options 196</p>
<p>Calendar Spread with Call Options 205</p>
<p>Diagonal Spread with Put Options 209</p>
<p>Diagonal Spread with Call Options 212</p>
<p>CHAPTER 14 Calendar Spreads with VIX Options and Futures 217</p>
<p>Comparing Options and Futures 217</p>
<p>Calendar Spread Examples 219</p>
<p>CHAPTER 15 Vertical Spreads with VIX Options 229</p>
<p>Vertical Spread Examples 229</p>
<p>CHAPTER 16 Iron Condors and Butterflies with VIX Options 251</p>
<p>What is an Iron Condor? 251</p>
<p>Iron Condor with VIX Options 255</p>
<p>What Is an Iron Butterfly? 257</p>
<p>Iron Butterfly with VIX Options 261</p>
<p>About the Author 265</p>
<p>Index 267</p>