Market Measures - December 13, 2017 - Buying Implied Volatility: Trying for the Home Run

Manage episode 193442042 series 68544
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The S&P 500 Implied Volatility Index (VIX) has been used countless times as a tool or indicator in the way of initiating or managing options strategies. However, today we turn our attention to trading the price of the product itself in an attempt to buy [implied volatility (IV)]( before there is a rush to [buying options]( VIX’s ability to jump from repressed levels below 15 all the way to above 40 in days makes it an attractive market to buy, but we have to use options here since the index does not trade itself. This makes the process of inventorying cheap VIX more difficult, and thus we performed a study. ###The Study * [Bought at-the-money (50 delta) naked calls]( * Compared various management strategies and buying when VIX was below 15 only * S&P 500 Implied Volatility Index (VIX) * 2006 to present ###The Results Though this strategy has seen some outsized profits over the last ten years, the sheer amount of losses has far outweighed those profits to the point that the strategy has performed with a net loss historically. Even when [managing profits]( in an attempt to increase the number of profitable trades it was not enough to take this losing trade to net profits over time. Check out the segment above for more information pertaining to buying implied volatility with naked calls in VIX.

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