Recalculating the VIX
Fun fact for VIX-watchers: have you ever noticed how the VIX tends to sag on Fridays and often bounces back the following Monday? It’s not because traders feel more confident every Friday but lose their bravado on Monday, as you may’ve guessed. Rather it stems from how S&P 500 (SPX) options traders adjust prices every Monday to mitigate value distortions caused by the weekend. Cruise on over to CBOE Options Hub (link above) if you’re curious to learn more.
If you’re asking yourself, “What’s the VIX, anyhow?”, I’ve blogged quite a bit on this topic. To get up-to-speed, I’d suggest you start with What’s the VIX - And Why Does It Matter to Traders? In a nutshell, the VIX is known as the “fear index.” It measures investor uncertainty and tends to spike when markets are dropping, highly volatile, or both. Conversely, the VIX tends to drop when market conditions are rising or relatively stable.
Options traders may want to proceed from there to VIX Options - The Need to Know Before You Trade. This recent post collects my “greatest hits” articles on VIX options, so be sure to click through on those.
Last but not least, you’ll want to check out my recent post A Must Read for VIX Options Traders. This should bring you up-to-date with what’s happening with the VIX lately.
I’ll close with a word of caution: VIX options are a truly wild, speculative ride. If you’re considering trading based on or in any regard to the VIX: Educate yourself, do your homework and plan your risk and exit strategies accordingly!
Until next time,
TradeKing Options Guy and Senior Option Analyst
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