Or Maybe Not

nvda Or Maybe Not

Guess that gap was a sale, lol, though it did it’s darndest to shake out the initial faders.

Just as a followup to my VIX Futures post earlier, the next obvilous question is whether there’s a way to “arb” the gap between the VIX and the futures.

And the answer would be there’s no lock trade there, though there are ways to sort of play it. Obviously on one side you could see VIX Jan. futures or Jan. options, or even VXN. It’s the other side that’s tricky. You can’t actually buy the VIX. You can buy SPX or SPY puts  (Lawrence McMillan often recommends that sort of combo) vs. the VIX futures short. It’s likely they’ll offset to some degree, though you have potential for a win-win (market tanks and VIX treads water or even upticks modestly…remember you’re getting a premium on the futures sale) or a lose-lose (market flatlines or rallies and your puts decay while the VIX futures premium persists). My gut says sizing this trade is tricky as you need to make sure it’s not too big a pure market bet.

Another way to simulate owning the VIX is to buy SPX or SPY straddles/strangles and hedge with SPY/SPX trades. Again though, this won’t perfectly offset the VIX future as the SPY/SPX trade will win or lose based on the realized volatility of SPY/SPX going forward whereas the VIX future may or may not react to that. Not to mention this is a capital and time intensive sort of play, and will not suit everyone.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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