New Weekly VIX Options Are Great For Volatility Traders

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• Hi, My name is Steve and Im with Options Trading
  Research, today were reviewing our recently
  published article

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New Weekly VIX Options Are Great For Volatility
Traders
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As volatility becomes a more popular metric for
investors to watch, so does trading volatility
products. The VIX itself is tradable through
futures and options. VIX options are heavily
traded by large institutions as an alternative to
SP 500 options.
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As a reminder, the VIX (SP 500 Volatility Index)
is a measure of implied volatility levels on SP
500 options. The VIX is often called the fear
gauge for investors. Broad market volatility is
most commonly tracked by watching the VIX.
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If youre interested in learning more about the
VIX, the CBOE VIX mini-site has a ton of valuable
information on the index. Follow the link if you
want to learn more.
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Retail investors tend to gravitate more towards
volatility ETF products. Theyre usually cheaper
to trade and can be easier to access. The most
popular of these ETFs is the iPath SP 500
Short-Term Futures ETN (VXX).
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Im not going to get into the pros and cons of
trading VIX (options) versus VXX or some other
volatility ETF. Each product can be a reasonable
way to trade volatility. And, they all have
faults. Its best to trade whatever youre most
comfortable with.
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For those of you with a deeper interest in
options volatility, Ive often written in the
past about volatility and options trading. Feel
free to check out this article to learn more
about why volatility is important.
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With the increasing trading volume of the VIX and
comparable volatility products, exchanges and ETF
companies are frequently adding new products to
the mix. Some of these new products have fallen
flat, while others have generated a good amount
of volume.
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Not too long ago, the CBOE, home of the VIX,
attempted to create short-term volatility
products based around the VXST, a 9-day
volatility measure
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. (Thats opposed to VIX, which is a 30-day
measure of volatility expectations.) These
products did not attract the interest from
traders that was expected. As such, the exchange
is doing away with VXST.
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However, the CBOE is instead listing weekly VIX
options, starting this summer. Trading weekly
options should fill the void left by halting the
VXST, while also providing a product traders are
familiar with. Early returns suggest these
options will be extremely popular.
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Okay, so why trade weekly options on the VIX?
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Heres the chart of the VIX
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As you can see, the VIX can be quite volatile and
choppy. 30-day volatility doesnt always
correspond to how quickly volatility is moving in
actuality. In fact, volatility often moves a
substantial amount on a daily basis.
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Weekly VIX options can help traders trade
volatility events more accurately. It could be
particularly useful for economic releases and
other major news events. Moreover, since these
weekly options expire on Wednesdays,
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they could be used to trade volatility around
employment reports (typical Friday release).
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So, are VIX weekly options likely to be popular?
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I believe the new weekly options will do
extremely well. Weekly SP 500 options already
make up about a third of overall SPX options
traded. VIX weekly products should do even
better.
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It may take awhile to figure out the best
strategies for trading weekly VIX options.
However, you can bet it will only be a positive
for traders to have more choices for tracking and
trading volatility.
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