Can i trade vix options

Many professional investors, hedge fund managers, individual traders and speculators use the VIX to measure market risk ahead of taking action in the stock market. If you have an interest in trading VIX options, keep in mind that how you trade VIX options is just as important as where you trade, so make sure you pick the right options broker for your needs.

Volatility is a vague concept that relates to the degree of variation in the price of a tradable asset over a period of time for most people. Furthermore, historical volatility, which is also called known or statistical volatility , can be measured objectively for a given past timeframe. This is done by computing the standard deviation of price changes observed on some basis say from close to close and then annualizing the result.

Most importantly for VIX option traders, implied volatility is the level of volatility for a particular future time frame. This is implied by option prices for that same time frame using an options pricing model, like the Black Scholes model.

Options are contracts with an expiration date and a value determined by the price of an underlying asset. Positions in the underlying VIX futures contracts are always offset before the delivery date or offset in cash on the delivery date since there can be no delivery of the index. Also, options expire worthless if transacting at their strike price is less favorable than at the prevailing underlying market on their expiration date and time.

Getting a good handle on the underlying index before trading options on the index also makes perfect sense. Like virtually any market, the VIX Index can be analyzed using technical analysis. It will therefore typically rise to reflect a higher level of fearful emotions and a growing state of uncertainty in the market and it will decline to signal a reduction in the level of those risk-related factors.

A good way to get familiar with how the index trades is to watch it during periods of market uncertainty. Do this during a major stock market selloff, as shown in the image below, or after the release of a significant economic number. Once you have an idea of how the index reacts to moves in the underlying market, you can then consider what option strategy you might apply.

Options trading strategies vary and can be implemented for up markets, down markets and sideways markets. For example, consolidating markets tend to depress implied volatility, while sharply moving markets tend to boost it. These are important upcoming economic releases or anticipated major events, such as elections or referendums, which might take place over the duration of the options you trade.

Beginners might want to stick to simple call and put buying to take advantage of directional moves in the VIX Index. More experienced traders might be comfortable spreading by buying and selling options simultaneously for a credit or debit. Spread strategies limit your returns but also limit your risk. Find the best strategy for your goals and develop a trading plan you can stick to that incorporates the strategy.

After researching volatility, the VIX Index and basic option strategies, find a reputable broker. Make sure the broker you select has oversight on the major U. Interactive Brokers is one of the most affordable brokers to trade options through if you have a large enough margin deposit to qualify for an account.

Interactive Brokers also offers tiered commission for traders who do large-volume trading. A demo account can help you learn how to trade options and to develop and test option trading strategies. In addition to allowing you to develop a trading plan, a demo account allows you to test your trade plan in real time. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. IG provides an execution-only service. The information in this site does not contain and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument.

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Careers IG Group. Inbox Community Academy Help. Log in Create live account. Related search: Market Data. Market Data Type of market. Markets to trade Indices What are indices? What is the VIX and how do you trade it?

Find out more. Practise on a demo. What is the VIX? Learn how to understand VIX values. Why trade the VIX? Learn more about trading volatility. How do you calculate the VIX? Learn how to trade index futures. Decide whether to go long or short on the VIX When you open a position on the VIX, there are two basic positions that you can take: long or short. Going long on the VIX The position you decide to take will depend on your expectation of volatility levels. Open a live account or practise on a demo Creating a live trading account with IG is a straightforward process.

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Popular Courses. VIX call options make a natural hedge against downward price shocks. VIX options trade as European-style options. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Volatility Volatility measures how much the price of a security, derivative, or index fluctuates.

Put Option Definition A put option grants the right to the owner to sell some amount of the underlying security at a specified price, on or before the option expires.