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Understanding these traits and their implications is important. VIX futures and options may provide market participants with flexibility to hedge a portfolio, employ strategies in an effort to generate returns from relative pricing differences, or express a bullish, bearish or neutral outlook for broad market implied volatility.
One of the biggest risks to an equity portfolio is a broad market decline. Consequently, a long exposure to volatility may offset an adverse impact of falling stock prices. Market participants should consider the time frame and characteristics associated with VIX futures and options to determine the utility of such a hedge.
VIX futures provide a pure play on the level of expected volatility. Expressing a long or short sentiment may involve buying or selling VIX futures. Alternatively, VIX options may provide similar means to position a portfolio for potential increases or decreases in anticipated volatility.
Over long periods, index options have tended to price in slightly more uncertainty than the market ultimately realizes. Market participants have used VIX futures and options to capitalize on this general difference between expected implied and realized actual volatility, and other types of volatility arbitrage strategies. One of the unique properties of volatility — and the VIX Index — is that its level is expected to trend toward a long-term average over time, a property commonly known as "mean-reversion.
As such, there is a wide variety of potential calendar spreading opportunities depending on expectations for implied volatility. The information above is provided for general education and information purposes only. No statement within these materials should be construed as a recommendation to buy or sell a security or future or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in these materials is available by contacting Cboe at www.
An easy-to-read guide for understanding the VIX complex. This document provides investors with simple guidelines that translate VIX Index levels into potentially more meaningful predictions or measures of market sentiment. A research paper outlining the opportunities created by using market uncertainty.
This paper explains how the strategy of selling volatility has generated higher returns with smaller losses, compared with traditional equity portfolios. The inclusion of research not conducted or explicitly endorsed by Cboe should not be construed as an endorsement or indication of the value of any research. Try Premier Try Premier. Trading Signals New Recommendations. Subscriptions Futures Trading Education. All Futures Contracts for [[ item.
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