(More) About Those VIX Calendars

• Posted by Adam Warner
• on July 27th, 2010

“lblamboy” adds some more salient points to the kind of flawed concept of the VIX calendar.

Danger Will Robinson…Danger!  :-)

As you’ve pointed out, these trades are NOT calendars in the traditional sense…the underlying futures for each leg trade “independently” and you can REALLY get burned on these trades if you’re not careful…In fact, my broker won’t even allow this trade to go through, for margin requirements, as a calendar…It’s considered a long one option, and naked short the other leg of the trade…For the uninitiated, while it doesn’t happen too often, it’s possible for both legs of this type of VIX “calendar” to go against you…so, even if you get more delta-neutral (which is, in its own rite, a vocabulary exercise!) at the start (as you describe), this is still not a trade for the average trader or the feint of heart.

And as well they should, it’s truly 2 separate bets. While they’ll generally move with each other, it’s not a stock. And once August expires, it cashes out, that’s it.

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