Details

Preface xiii <p>Acknowledgments xv</p> <p><b>CHAPTER 1 Understanding Implied Volatility 1</b></p> <p>Historical versus Forward-Looking Volatility 1</p> <p>Put-Call Parity 4</p> <p>Estimating Price Movement 6</p> <p>Valuing Options: Pricing Calculators and Other Tools 6</p> <p>Fluctuations Based on Supply and Demand 9</p> <p>The Impact on Option Prices 13</p> <p>Implied Volatility and the VIX 14</p> <p><b>CHAPTER 2 About the VIX Index 15</b></p> <p>History of the VIX 15</p> <p>Calculating the VIX 17</p> <p>The VIX and Put-Call Parity 18</p> <p>The VIX and Market Movement 22</p> <p>Equity Market Volatility Indexes 24</p> <p><b>CHAPTER 3 VIX Futures 31</b></p> <p>Steady Growth of New Products 31</p> <p>Contract Specifications 33</p> <p>Mini-VIX Futures 42</p> <p>Pricing Relationship between VIX Futures and the Index 42</p> <p>Futures’ Relationship to Each Other 46</p> <p>VIX Futures Data 47</p> <p><b>CHAPTER 4 VIX Options 49</b></p> <p>Contract Specifications 51</p> <p>Relationship to VIX Index 56</p> <p>Relationship to VIX Futures 57</p> <p>VIX Binary Options 58</p> <p><b>CHAPTER 5 Weekly Options on CBOE Volatility Index Futures 61</b></p> <p>Contract Specifications 62</p> <p>Weekly Options and Index Options 63</p> <p>Weekly Option Strategy 65</p> <p><b>CHAPTER 6 Volatility-Related Exchange-Traded Notes 69</b></p> <p>What are Exchange-Traded Notes? 69</p> <p>iPath S&P 500 VIX Short-Term Futures ETN 70</p> <p>iPath S&P 500 VIX Mid-Term Futures ETN 73</p> <p>Comparing the VXX and VXZ Performance 76</p> <p>Barclays ETN+ Inverse S&P 500 VIX Short-Term</p> <p>Futures ETN 80</p> <p>Barclays ETN+ S&P VEQTOR ETN 82</p> <p>S&P 500 VIX Futures Source ETF 82</p> <p><b>CHAPTER 7 Alternate Equity Volatility and Strategy Indexes 83</b></p> <p>CBOE S&P 500 3-Month Volatility Index (VXV) 83</p> <p>VIX Premium Strategy Index (VPD) 88</p> <p>Capped VIX Premium Strategy Index (VPN) 90</p> <p>S&P 500 VARB-X Strategy Benchmark 93</p> <p>S&P 500 Implied Correlation Index 95</p> <p><b>CHAPTER 8 Volatility Indexes on Alternative Assets 99</b></p> <p>CBOE Gold Volatility Index 100</p> <p>CBOE Crude Oil Volatility Index 102</p> <p>CBOE EuroCurrency Volatility Index 104</p> <p>CBOE/NYMEX Crude Oil (WTI) Volatility Index 107</p> <p>CBOE/COMEX Gold Volatility Index 107</p> <p>CBOE/CBOT Grain Volatility Indexes 109</p> <p>FX Realized Volatility Indexes 109</p> <p><b>CHAPTER 9 The VIX as a Stock Market Indicator 113</b></p> <p>The Inverse Relationship between the VIX and the S&P 500 114</p> <p>VIX Index as an Indicator 115</p> <p>VIX Futures as an Indicator 118</p> <p>A Modified VIX Futures Contract 121</p> <p>Combining VIX Futures and the VIX Index 122</p> <p>VIX Index and Gold Price Indicator 124</p> <p>VIX Option Put-Call Ratio 127</p> <p><b>CHAPTER 10 Hedging with VIX Derivatives 133</b></p> <p>Hedging with VIX Options 133</p> <p>Hedging with VIX Futures 143</p> <p>University of Massachusetts Study 147</p> <p><b>CHAPTER 11 Speculating with VIX Derivatives 149</b></p> <p>VIX Futures Trading 150</p> <p>VIX Option Trading 153</p> <p>VIX ETN Trading 161</p> <p>Comparing VIX Trading Instruments 166</p> <p><b>CHAPTER 12 Calendar Spreads with VIX Futures 169</b></p> <p>Comparing VIX Futures Prices 170</p> <p>The Mechanics of a Calendar Spread 175</p> <p>Patterns in the Data 178</p> <p>Trade Management 189</p> <p>Other Parameters 193</p> <p><b>CHAPTER 13 Calendar Spreads with VIX Options 195</b></p> <p>VIX Option Pricing 195</p> <p>Calendar Spread with Put Options 196</p> <p>Calendar Spread with Call Options 205</p> <p>Diagonal Spread with Put Options 209</p> <p>Diagonal Spread with Call Options 212</p> <p><b>CHAPTER 14 Calendar Spreads with VIX Options</b> <b>and Futures 217</b></p> <p>Comparing Options and Futures 217</p> <p>Calendar Spread Examples 219</p> <p><b>CHAPTER 15 Vertical Spreads with VIX Options 229</b></p> <p>Vertical Spread Examples 229</p> <p><b>CHAPTER 16 Iron Condors and Butterflies with VIX Options 251</b></p> <p>What is an Iron Condor? 251</p> <p>Iron Condor with VIX Options 255</p> <p>What Is an Iron Butterfly? 257</p> <p>Iron Butterfly with VIX Options 261</p> <p>About the Author 265</p> <p>Index 267</p>

"For those wanting to take the next step in learning or portfolio modeling, Trading VIX Derivatives will be a logical step in progression. For investors considering trading the VIX in any of many products available I recommend getting a copy of <i>Trading VIX Derivatives</i> with the great return on investment this book offers." (<i>SeekingAlpha</i>, April 2012)

<p><b>RUSSELL RHOADS, CFA,</b> is an instructor for the Options Institute at the Chicago Board Options Exchange. He teaches about ninety classes a year and conducts webinars on behalf of the CBOE and a variety of brokerage firms. Rhoads's twenty-year trading career has included positions at a variety of trading firms and hedge funds. His background includes trading and analysis, and he is the author of the Wiley titles <i>Candlestick Charting For Dummies</i> and <i>Option Spread Trading</i>. Rhoads graduated from the University of Memphis with an MS in finance and has a master's certificate in financial engineering from the Illinois Institute of Technology.

<p><b>TRADING VIX DERIVATIVES</b> <p>While the Chicago Board Options Exchange (CBOE) Volatility Index, widely know by its ticker symbol VIX, is often referred to as the "fear index," it is much more than an index of fear in the stock market. Nobody understands this better than author Russell Rhoads, a top instructor at the CBOE's Options Institute. Now, in <i>Trading VIX Derivatives,</i> he skillfully explores the ins and outs of this popular market indicator, or index, that is based on implied volatility. <p>Engaging and informative, this reliable resource provides you with a solid understanding of implied volatility, the VIX index, methods of using the VIX for market analysis, and ways to directly trade volatility. <p>Page by page, you'll become familiar with a number of volatility-related indexes and products currently available—from the S&P 500 Implied Correlation Index (VTY) and CBOE Crude Oil Volatility Index to VIX futures, options, and exchange-traded notes. There are unique features to many of the derivative contracts that are based on implied volatility, and they are touched on throughout the book. <p>Along the way, Rhoads takes the time to highlight the various uses of volatility-related indexes and products. Methods to speculate on the direction of the overall market, or just volatility, are skillfully addressed as well as how to apply volatility derivatives to hedge traditional portfolios. Rhoads rounds out his detailed discussion of trading VIX derivatives by offering you valuable insights on everything from calendar spreads with VIX options and futures to iron condors and butterflies with VIX options. <p>Volatility as an asset class and trading tool continues to be a rapidly growing area in the markets. With this book as your guide, you'll quickly discover a wide range of uses associated with the VIX and learn how to implement profitable new forecasting and trading techniques into your everyday investing endeavors with it.

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