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How Do You Buy The Vix

The VIX index draws from both call and put options with more than 23 days and less than 37 days to expiration.\u00a0"}},"@type":"Question","name":"How do I bet against the VIX?","acceptedAnswer":"@type":"Answer","text":"The best way to directly bet against the VIX is to use bearish options trading strategies on the VIX itself, such as the bear call spread and bull put spread.\u00a0Additionally, investors can purchase SVXY, ProShares Short VIX Short-Term Futures ETF. Because of contango, this ETF tends to shed value faster than the VIX.\u00a0"]}Next LessonVIX Term Structure ExplainedJanuary 27, 2022CBOE Volatility Index GuideFebruary 3, 2022High Dividend, Low Volatility ETFsJune 14, 2021Additional ResourcesCBOE Volatility Index: Live Data

how do you buy the vix

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VIX options and futures are priced based on forward-looking market activity. Sometimes /VX may trade at a premium to the VIX Index, and other times, the futures may trade at a discount. Basically, the level of /VX reflects where traders believe the VIX Index will be at some date in the future. When futures are valued at a premium, this indicates traders believe the VIX Index will move higher by a certain date. When futures are at a discount, the marketplace often anticipates a drop in the VIX. This is another reason futures are used as the underlying pricing instrument for VIX puts and calls.

Keep in mind, the VIX level that results from the opening SPX options prices may differ from the closing VIX Index level the evening before (see figure 2). This is partly because of normal overnight activity in the global equity markets, but a number of factors may influence the actual settlement price. Also, because the VIX settlement level is determined with opening prices, it could take a few hours for the actual settlement level of the VIX to be determined. VRO is the ticker symbol for the VIX settlement price.

If you have a profit in a VIX options position going into expiration, based on market conditions, the wisest choice may be to attempt to close the position and take the profit. There may be some risk involved in holding VIX options until the settlement price is determined. Be warned.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Futures and futures options trading services provided by Charles Schwab Futures and Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify. Prior to a name change in September 2021, Charles Schwab Futures and Forex LLC was known as TD Ameritrade Futures & Forex LLC.

Charles Schwab Futures and Forex LLC, a CFTC-registered Futures Commission Merchant and NFA Forex Dealer Member. Charles Schwab Futures and Forex LLC is a subsidiary of The Charles Schwab Corporation.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

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Mini VIX futures are based on the VIX Index, and reflect the market's estimate of the value of the VIX Index on various expiration dates in the future. At 1/10th the size of the standard VIX futures contract, Mini VIX futures are designed to provide additional flexibility in volatility risk management and greater precision when allocating among smaller managed accounts.

Mini VIX futures provide market participants with opportunities to trade their view of the future direction of the expected volatility of the S&P 500 Index. This contract may also present opportunities to manage risk, generate alpha or diversify a portfolio. The smaller notional value of Mini VIX futures may appeal to:

Mini VIX futures have unique characteristics. Like VIX futures, Mini VIX futures may behave differently than other financial-based commodity or equity products. Understanding these traits and their implications is important. Mini VIX futures may provide market participants with flexibility to hedge a portfolio, employ strategies in an effort to generate returns from relative pricing differences, or express a bullish, bearish or neutral outlook for broad market implied volatility.

One of the biggest risks to an equity portfolio is a broad market decline. The VIX Index has had a historically strong inverse relationship with the S&P 500 Index. Consequently, a long exposure to volatility may offset an adverse impact of falling stock prices. Market participants should consider the time frame and characteristics associated with Mini VIX futures to determine the utility of such a hedge.

Over long periods, index options have tended to price in slightly more uncertainty than the market ultimately realizes. Specifically, the expected volatility implied by SPX option prices tends to trade at a premium relative to subsequent realized volatility in the S&P 500 Index. Market participants have used VIX futures to capitalize on this general difference between expected (implied) and realized (actual) volatility, and other types of volatility arbitrage strategies.

One of the unique properties of volatility and the VIX Index is that its level is expected to trend toward a long-term average over time, a property commonly known as "mean-reversion". The mean reverting nature of volatility has been a key driver of the shape of the VIX futures term structure and the way it can move in response to changes in perceived risk. With multiple monthly contracts, there may be a wide variety of potential calendar spreading opportunities with Mini VIX futures depending on expectations for implied volatility.

The VIX Index settlement process is patterned after the process used to settle A.M.-settled S&P 500 Index options. The final settlement value for Volatility Derivatives is determined on the morning of their expiration date (usually a Wednesday) through a Special Opening Quotation ("SOQ") of the VIX Index. By providing market participants with a mechanism to buy and sell SPX options at the prices that are used to calculate the final settlement value for Volatility Derivatives, the VIX Index settlement process is "tradable."

Volatility surged this week as uncertainty over a potential Brexit had investors hitting the panic button, but according to one trader, investors would be wise to buy stocks in this type of environment.

Looking at how the S&P 500 has performed at times when the VIX was above 20 versus below it over the past three years, Khouw noted that the average return for equities is actually better if you bought when volatility was heightened.

"You'll observe that when the VIX was above 20, if you had bought the S&P over the next 30 days you would have averaged a return of 3.1 percent, your best return over that period would have been 10.9 percent and your worst would have been down about 8 percent," said the co-founder and president of Optimize Advisors. "Here's the interesting bit, you would have been profitable 80 percent of the time."

Compare that to buying the large-cap index when the VIX is below 20, and returns are much lower. Khouw noted that if one were to purchase the S&P 500 in a period of low volatility, or when the VIX is below 20, the average return is around half of a percent, while the best return is 8.2 percent, the worst is negative 9.7 percent and the index is only positive 64 percent of the time in the 30 days following.

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