New York Options Traders Message Board › Digging into the vol and the VIX
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New York, NY
Thank you for attending another exciting session on Options Trading and Volatility. Since we talked about the VIX quite a bit, I thought the following reference from the CBOE would be helpful:
Please, keep in mind that when trading options, in the vast majority of cases you are taking a position in volatility, so you should be very familiar with the concept. Here is the summary of the 4 concepts/behaviours we discussed:
1. Mean reversion (for the VIX, the mean (average) value is about 19 using about 5,000 daily observations)
2. Persistence (low/high regime) often lasting years
3. Bottom on the VIX is about 10
4. Equity implied volatility (like the VIX), usually moves opposite to the market, but not always. When they move together, be careful!
Remember that VIX quotes are expected annualized one standard deviation (68% probability) moves for the next 30 days. To convert to a monthly expected move, simply divide by the square root of 12. So the 35% VIX, is equivalent to 35/sqrt(12) =~ 10%. That puts the range on the SPX in 30 days between 1,307 and 1,069. Of course, the probability of touching one of these prices within the 30 day window is much higher than 32%.
Happy Trading and Best of Luck!
Edited by Eric Novik on Sep 23, 2008 10:50 PM