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So today the VIX moved exactly as I expected and fell from $18.70 all the way down to the high $14.00 range. I own the $14 puts, but they barely budged during this massive move. I suppose that is due to the enormous volitility already priced into the premium. I really need the VIX to drop down another dollar to make a decent profit. It’s all profit from here the further it goes down.
Call me crazy but if you own an option on something that declines 20% without the option changing value, you might have paid too much for that option. Risk/reward seems off.
Call me crazy but if you own an option on something that declines 20% without the option changing value, you might have paid too much for that option. Risk/reward seems off.
Options are priced based on how much the underlying is expected to move. In the above situation, the VIX easily moves 20% so that is priced in. A common source of confusion by new option traders is that they buy a call on a stock as it approaches earnings expecting it to beat. On earnings the stock beats and the price moves up, however the call falls in value. One can get upset by this, or one can understand why this happens and use it to their advantage.
VIX volatility was 78 a week ago. It is now 134. VIX is also priced based on SPX options that expire within 21 days. SVXY is up about 2-5 percent depending on where one purchased on Tuesday.
I'll have to remember this. I'll assume though that during a huge VIX spike up to 40, the chance of a VIX decline is already priced into the options so they probably trade at a premium. Smaller VIX spikes like this I can see how it might work... it's like all investing just educated gambling. Basically try to trade like a contrarian.. invest in something when everyone else isn't, and do something while everyone else is lulled into a false sense of security.
For example, there's still way too many analysts calling for a correction to make me think we are going to have a big correction. Usually when one happens it tends to catch people off guard.
VIX volatility was 78 a week ago. It is now 134. VIX is also priced based on SPX options that expire within 21 days. SVXY is up about 2-5 percent depending on where one purchased on Tuesday.
VIX uses options that have more than 23 days and less than 37 days to expiration. VIX is calculated daily, and so because of that the actual underlying of the VIX are made up of different standard and weekly SPX contract contracts vs. cost of the near 30-day S&P500 index puts that actually derive the movement of the VIX.
So, they are indeed a derivative of a derivative of a derivative.
I'll have to remember this. I'll assume though that during a huge VIX spike up to 40, the chance of a VIX decline is already priced into the options so they probably trade at a premium. Smaller VIX spikes like this I can see how it might work... it's like all investing just educated gambling. Basically try to trade like a contrarian.. invest in something when everyone else isn't, and do something while everyone else is lulled into a false sense of security.
For example, there's still way too many analysts calling for a correction to make me think we are going to have a big correction. Usually when one happens it tends to catch people off guard.
Not really gambling, there is actual market mechanics and pricing behind the moves. However, in a sense it is market sentiment gauging...since it is actually measuring the money people have actually put into the market on either side of SPX calls/puts & S&P500 index puts and their current bid/ask spread that "measure" the "sentiment". Not guessing.
Not really gambling, there is actual market mechanics and pricing behind the moves. However, in a sense it is market sentiment gauging...since it is actually measuring the money people have actually put into the market on either side of SPX calls/puts & S&P500 index puts and their current bid/ask spread that "measure" the "sentiment". Not guessing.
bs...its PURE GAMBLING. Unless you have inside knowledge its a crapshoot. If it was that easy OR ODDS WERE IN YOUR FAVOR...everyone would pick this odd ass stuff. People dont because the risk is too great. Hence GAMBLING.
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