VIX Future on CFE

[RedE]

Has anybody traded the VIX futures on the new CFE market.

For those not up to speed:

• The VIX is the index which measures the "implied volaitility" of the near SP500 index options.
• The VXB is another index: the VIX value multiplied by 10.
• The Futures are based on the VXB.

So, trading the futures, say VIXX4 (the Nov04 Expiry) will give you exposure to the performance of the VIX index.

Anyone have any experience??

Or will I be the first?

 

[DaveT]

RedE -

I haven't previously traded VIX, but since IG Index (one of my brokers) started offering spreads on the futures (from Sept 04), I have looked into this.

The long-term monthly CBOE chart shows that volatility is currently around 10-year lows...

Spikes in the VIX historically correspond with sharp declines on the S&P - which is why the VIX is often referred to as a 'fear guage'. Volatlilty generally increases during stock market collapses.

Note the massive 1-month spike in October 1987 : big crash = maximum fear.

If one could anticipate a coming market collapse (or scale-in early), going long the VIX futures (with high leverage) could be an excellent way of profiting from such a situation.
For example, you could cross-examine both VIX and S&P charts, so if you saw a clear major technical sell signal on the S&P (monthly/weekly charts) , coinciding with a buy signal on the VIX, that would be a strong case for gearing up long on the VIX futures.

See monthly VIX chart attached: