As the VIX inches downward after months of defying gravity, I got a chance to talk with the Wall Street Journal’s Tennille Tracy about how dangerous VIX-based calendar spreads can be.

Her article, Siren Call for Risky Options Trade, explains an all-too-common misconception: namely, that VIX options are based on the S&P 500 futures contract, not the S&P 500 itself. That makes for nasty surprises when the S&P 500 moves while the S&P 500 future might not move at all. Glad to see Tennille is getting the word out to correct this mistake.

At TradeKing we’ve blogged quite a bit about the VIX and calendar spreads, which (when not VIX-based) are relatively conservative option strategies with a nicely defined risk profile. If you’re hungry for more on these subjects, we’ve got plenty on offer:

I blogged about VIX options and expiration, which tend to be a little different from “standard” options expiration. I also chatted with TheStreet.com’s Steve Smith on VIX options in this online video.

Over at TradeKing All-Stars, my colleague Jonathan “Doc” Maher blogged on the trickery of VIX call options, and he’s actually running an intermediate-to-advanced series right now on calendar spreads.

And if you’re a TradeKing client, login and check out our educational video on long calendar spreads and the Options Playbook under the Education menu – just look for Play #27 (Long Calendar Spreads with Calls) or Play #28 (Long Calendar Spreads with Puts).

And you’re always welcome to hit me with your questions about the VIX or calendars here! I’m happy to explain the finer points of either.

P.S. bonus round: I came across this great article from Slate’s The Big Money explaining the VIX – definitely worth a look. They’ve also got me curious about the “Vlab”, a newly released alternative to the VIX by Prof. Rob Engle of New York University’s Stern School of Business.

Regards,
Brian Overby
TradeKing's Options Guy
www.tradeking.com

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