Saturday, April 16, 2011

VIX Options Trading Experience

A few weeks ago I traded my first VIX options. I just thought that with VIX at 17 and its relative lows at about 15 that I would sell some 17 strike puts. My feeling was I could just roll out to the next month and down to 16 if it went below 17. So that theory is flawed for a few reasons but the main thing I didn't consider was that below 17 there isn't really any premium to be had because it historically doesn't trade for much less, which makes sense as the reason I was interested in selling puts in the first place was that VIX doesn't normally trade this low and can't go to 0. The reason I exited the trade was with about six days left until they expired they were still trading .05 away from where I entered, but VIX was also trading about the same place and the next month options didn't look very enticing.

I took a look at the option chain and the price for the 17 put is about the same. So this made no sense to me for the weekly and monthly premiums to be near equal. The bid for the 16 put was .05 so that threw that theory out the window of rolling down to a lower strike. I also did not notice when I sold to open for .25 that these only trade in .05 increments. Last trade was showing .18 so I tried to pay that to close and TOS kicked the order out as invalid. So now I'm pissed that the chart is showing trades going through at prices other than .05 denominations so I decide this instrument sucks ass and there are better ways to play volatility. So I got out with a small $35 profit after fees but learned another lesson, which is great. I'm a big proponent of continually trying to trade with new instruments or ideas using small position size in order to gain the learning experience with real money instead of paper trading. I started small trading bond futures in November not having a clue how they worked and now I fully understand and I've booked $25,000 in profits. VIX options are not for me so I'll move on and dabble with something else.

VIX Option Chain: Last Trade shows .18 on the APR 17 Puts

Chart of APR 17 Put Trade Prices: Why are trades going through at other than .05 increments but TOS won't let me do it?

Long-Term VIX Chart with relative lows of near 15

Close Out Trade

1 comment:

  1. I have no experience trading VIX but it makes no sense to me that TOS rejected your order given what they are showing on the platform. Even though you are not interested in trading VIX it might be worthwhile to call the trade desk and ask for an explanation to complete the learning experience.