Volatility Trading: Trading The Fear Index VIX
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The document provides an overview of volatility trading, focusing on the VIX index, referred to as the 'fear index', and its derivatives. It discusses the nature of volatility, measurement techniques, and strategies for trading VIX, including observations about the relationship between S&P 500 declines and VIX rises. Additionally, it highlights the risks associated with VIX derivatives and offers a simple trading strategy based on these trends.
Volatility Trading: Trading The Fear Index VIX
- 2. Brief on volatility Agenda Why is VIX called the fear index? Different types of VIX VIX based derivatives A simple strategy to trade VIX Q&A
- 3. What is Volatility? Highly Volatile!
- 4. Example of Volatile Stock
- 5. Example of Volatile Stock
- 6. Example of Volatile Stock
- 7. What is Volatility? How much the price varies Traders use volatility while placing trades
- 8. The Index is volatile too!
- 10. How Do You Measure Volatility? Standard Deviation Standard Deviation gives historical value
- 11. Can You Estimate Future Volatility? Yes!
- 12. Implied Volatility is the market’s expectation of how much the asset will move. Implied Volatility does not tell you in which direction the move is expected. Implied Volatility is used for pricing options
- 13. Does VIX use Implied Volatility of index options?
- 14. Does VIX use Implied Volatility of index options? Yes!
- 15. VIX (Volatility Index) was created by CBOE
- 17. Why is VIX called FEAR INDEX?
- 19. Do we have VIX only for S&P500? NO!
- 20. Index Underlying Index used in Analysis VIX S&P500 S&P/ASX 200 VIX S&P/ASX 200 VIX VSTOXX Euro STOXX 50 S&P/TSX 60 VIX S&P/TSX 60 HSI Volatility Index Hang Seng Index
- 21. Can you trade VIX directly? NO!
- 22. But you can use VIX Derivatives!
- 23. VIX VIX Futures VIX ETFs VIX Inverse ETFs VIX ETNs VIXY VIXM SVXY VXX
- 24. Risks related to VIX Derivatives
- 25. Risks Associated with VIX Derivatives ETNs have issuer risk VIX futures have contango effect
- 26. A simple VIX Based Strategy
- 27. A Simple VIX Based Strategy Observation: When S&P500 declines, VIX rises VIXY follows VIX Short term futures
- 28. A Simple VIX Based Strategy Observation: When S&P500 declines, VIX rises VIXY follows VIX Short term futures
- 29. A Simple VIX Based Strategy Observation: When S&P500 declines, VIX rises VIXY follows VIX Short term futures Strategy Idea: When S&P500 declines, go long on VIXY
- 30. A Simple VIX Based Strategy
- 32. THANK YOU!