Thinkorswim has some thoughts on the VIX products.But if you think the VIX won't go below 10%, that sounds an awful lot like a floor to its value. And if you think the VIX can go to 40% (not likely either, but it's been up there more frequently than it's been below 10%), then that huge upside combined with limited downside could be described as a call. So, is the VIX future really like a deep in the money call on volatility? It's deep in the money because it always has an unchanging 1.00 delta with 0 gamma (because the delta never changes). So, if the May VIX future is trading at 128.00 (in VIX index terms, 12.8%), is that like buying a 10 strike call for 2.80?
I never really thought about this, because i think the whole product is silly, but it makes some sense. But how does this help us?
What can you do with this information? Not much, really. But thinking like this about futures and options can lead you to think more creatively about trading, which may lead to better trading results.
I suppose. To me, my whole operation is my varying opinions of volatility across different products and time frames. But the VIX is a way to place an easy bet on it, no question. And it is unique in that the floor is not 0, but maybe 9 or 10 (although as Tom Preston points out, that could change over time).
3 comments:
no news here. teh behaviour of volatility has long been studied, and the notion that futures contract have implied optionality/convexity/whatever is nothing new either
Maybe you know this, I could not get a straight answer from brokers.
If you short a stock in the midst of a tender offer, (see AN ), what is the chance / liablility, your shorted shares will be tendered and you'd have to pay the owner. Timeframe of notification is also an issue.
Note the action in AN today, tanked on the oversubscription (not a surprise) . The puts lifted some but this was obviously priced into them as well.
i believe "owe" the lender, so it is my guess that it is immediate and automatic. Not positive of that though
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