facebookIs there a way I could bet on the volatility of stocks? Can anybody share about VIX? - Seedly

Anonymous

22 Nov 2019

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General Investing

Is there a way I could bet on the volatility of stocks? Can anybody share about VIX?

Heard of VIX- but not sure how it really works. Can anybody share?

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Kelly Trinh

22 Nov 2019

Backoffice technical at financial services firm

Yes VIX would be an appropriate instrument to bet on volatility of stocks.

As part of the basic Black-Scholes Option Pricing Model - one key input is the volatility of the underlying instrument. It is the only input that is not directly observable but you can work out the implied volatility if there is a market price as you can work backwards from based on the other inputs (which are all observable).

VIX (Volatility IndeX) is measure of the volatility implied by option on the S&P500 over a period of 1 month. The calculation is technically complex but the CBOE (Chicago Board Options Exchange - where options are traditionally traded) will calculate it and it is available on ticker symbol VIX (duh).

There is various instruments available to get exposure to VIX (with all sorts of variations, 2x/3x VIX, short VIX, a combination of the two, etc etc etc)

Be very careful speculating on VIX as is very unstable - in early 2018 those short VIX got killed - they literally lost all their money as VIX was very low for an extend period and the shorts got complacent and then suddenly when there was a volatlity spike, the inverse VIX instruments basically dropped to zero value.

Basically in essence, VIX is the expectations on volatility on the S&P500. In its derivation, I believe VIX is calculated over a 30 day range of put vs calls in SPX (S&P Index). I recommend you search up more online if you are curious.

Here's a technical analysis chart on VIX I saw. Not sure exactly how credible this analysis is though(what specific indicators he based it off)

TLDR: Wouldn't recommend longing or shorting VIX. You are essentially investing in the expectated volatility increasing/decreasing which is essentially market timing.

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