In 2006, CBOE
introduced for the first time ever options written on the VIX index. Options
are products that are traded in exchanges and in the over the counter market.
There are two categories of options. The first one are the call options and the
second one the put options. A call option
gives the holder the right but not the obligation to buy the underlying asset
at a fixed date and at a certain price. On the other hand, a put option gives
the holder the right but not the obligation to sell the underlying asset at a
fixed date and at a certain price. Both call and put options are written on an
underlying asset. The VIX options are written on the VIX index. Investors who
believe in the increase of the market volatility can buy VIX calls and take
advantage of that move. On the other hand, many investors use VIX options as
hedging tools. An investor can choose among many strategies (bull1,
etc.) which is the most profitable.
have some special characteristics which make them different from the other
index options. Some of those characteristics are the following. The pricing of
VIX option is based on forward VIX value. The settlement takes place every
Wednesday. Furthermore, there is a negative correlation to the stock index. And
the option have a high volatility of volatility.
On October 8,
2015 VIX Weeklys options began trading at Chicago Board Options Exchange, Incorporated
(CBOE®). Today, SPX Weeklys account for one-third of all SPX options traded,
and average over a quarter of a million contracts traded per day. SPX Weeklys
currently represent approximately 30% of all SPX options volume.
1 Bull spread is a speculative
strategy for which the investors buy one option with the low strike price and
sell one option with the high strike.
2 Bear spread is a speculative
strategy for which the investors sell one option with the low strike price and
buy one option with the high strike