How to Use Index Options to Hedge

Options can not only be used to speculate on a stock s direction but also as portfolio insurance A shareholder who is nervous about a pullback might buy a protective put or married put on a stock they own to use as an insurance policy in a way Likewise traders can also hedge How to Use Index Options to Hedge at vixtrade.com

New Single-day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4%

An August 10 press release by CBOE Holdings stated that —

“ … trading volume in options and futures on the CBOE Volatility Index® (VIX®) each reached new all-time highs on Thursday, August 10. In VIX options at CBOE, a reported 2,562,477 contracts traded on Thursday, surpassing the previous single-day record of 2,382,752 contracts on February 3, 2014. Year-to-date through the end of July, average daily volume in VIX options was 687,181 contracts, 11 percent ahead of the same period a year ago. In VIX futures at CBOE Futures Exchange (CFE), a reported 939,297 contracts traded on Thursday, surpassing the previous single-day record of 791,788 contracts on October 15, 2014. Of the 10 busiest trading days of all-time for VIX futures, four have occurred in 2017. Year-to-date through the end of July, average daily volume in VIX futures was 283,342 contracts, 20 percent ahead of the same period a year ago.”

A story posted at nytimes.com noted that —

“… After a record-breaking run of buoyant market behavior, investors appeared unnerved on Thursday by a series of provocative remarks by President Trump and increasing tensions with North Korea. …”

BIGGEST ONE-DAY MOVES FOR VIX INDEX

On August 10 the VIX Index jumped 44.4% to close at 16.04. The move was the ninth-biggest one-day move (in percentage terms) for the VIX Index. Note that in the table below with ten dates that the S&P 500 Index fell farther than the CBOE S&P 500 PutWrite Index (PUT) on all ten dates, and that option-writing strategies often are designed to provide a cushion in the event of a downward move in the stock index.

 2 Biggest Moves VIX Table Aug 10 New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

 

OTHER VOLATILITY INDEXES ALSO ROSE ON AUGUST 10

As shown in the next table, several other volatility indexes also rose on August 10, including the CBOE Equity VIX on Apple (VXAPL) (up 22.4%) and the CBOE VIX of VIX Index (VVIX) (up 26.7%).

2Views Table indexes Aug 10 New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

RECORD OPEN INTEREST FOR VIX FUTURES

In addition to this month’s single-day volume records, the VIX futures set another new record with more than 675,000 open interest. VIX futures open interest has more than doubled since January 2016. I find it interesting to examine the table below with its comparison of VIX futures open interest and VIX Index values. While some observers assume that high volatility levels are  associated with high volume and open interest figures, in the chart it appears that at times VIX futures open interest increased when the VIX Index was well below its long-term average levels.

 4 VIX Fut Open interest and VIX index New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

VIX FUTURES PRICES

While there is much press coverage of movements of the spot VIX Index, the index is not investable. Investors who are interested in VIX-related investable instruments can explore the pricing of VIX futures. The table below shows that the last prices for VIX futures with 14 different expiration dates ranged from 14.75 to 17.45 at around 7:05 p.m. Chicago time on August 10.

VIX fut table New Single day Volume Records for VIX Futures and VIX Options, as the VIX Index Rises 44.4% at vixtrade.com

MORE INFORMATION

To learn more about how VIX futures and VIX options can help in the management of portfolios, please visit www.cboe.com/VIX.

 

 

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