I wanted to give a shout-out to Adam, author of the excellent Daily Options Report for a recent post on VIX futures. He’s absolutely correct to point out that the volatility index (VIX), aka the “fear index”, does not move in lock-step with the VIX futures, a common misconception. Even more common is the mistaken belief that options based on the VIX will increase and decrease with movements in the actual VIX index. VIX options are actually based on the futures, as I explained a while back, but the relationship between underlying and option is a little trickier than your typical equity-as-underlying scenario.

You can compare quotes on various futures products at the Chicago Board Options Exchange (CBOE) site. You’ll first see a list of VIX futures for the different expirations; just click a symbol to get a delayed on that expiration month’s future.

I’m with Adam that a scenario in which the VIX and VIX futures both explode could be a bullish signal. At the same time, before you attempt to ride this wild bull, make sure you understand what you’re trading. This earlier post of mine goes into great detail about the VIX future and what it exactly means. If you’ve ever traded a calendar spread on the VIX in particular, this post is a must-read.

If you’re hungry to learn more about the VIX, here’s another followup post I wrote on VIX options, which includes a link to an online video interview I did on this subject with Steve Smith at TheStreet.com. You might also be interested in the TradeKing blog’s post on the new VIX options introduced almost exactly two years and a followup post on why those options aren’t really working out as planned.

Next week we’ll take this topic further by discussing the VIX options’ expiration date. These options are slightly oddball compared to “standard” equity options in more ways than one. It’s important to know what you’re getting into before you attempt to trade these unique investments.

And if you have any questions on the VIX, send ‘em along. Now’s a great market environment for discussing this topic.

Regards,
Brian (OG)

[image: from Bill at his blog VIX and More]

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or probability of reaching a specific price point there is no guarantee that this forecast will be correct.

Any strategies discussed or securities mentioned, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities.