VIX Options and Futures Strategies


VIX futures (introduced in 2004) and VIX options (introduced in 2006) enable investors to trade volatility independent of the direction or the level of stock prices. Whether an investor's outlook on the market is bullish, bearish or somewhere in between -- VIX options and futures can provide the ability to diversify a portfolio or hedge, mitigate or capitalize on broad market volatility.

Investors are urged to read the VIX Primer and the Options Disclosure Document before engaging in strategies using VIX futures or VIX options. Past performance is not predictive of future returns, and the VIX Index is not investable.

Descriptions of VIX-related Benchmark Indexes

While the VIX Index itself is a gauge and is not investable, Cboe offers the following VIX-related benchmark indexes that are designed to serve as benchmarks for hypothetical investable performance over more than a decade.

  • Cboe Low Volatility Index (LOVOL) is a 40% / 60% blend of the CBOE S&P 500 BuyWrite Index (BXM) and CBOE VIX Tail Hedge Index (VXTH); the portfolio overlays long VIX calls and short S&P 500 calls over an investment in S&P 500 stocks.
  • Cboe VIX Premium Strategy Index (VPD) overlays a sequence of short one-month VIX futures on a money market account; the short VIX futures positions are held until expiration and new VIX futures are then sold.
  • Cboe Capped VIX Premium Strategy Index (VPN) tracks the performance of a strategy that systematically sells 1-month VIX futures, capped by the purchase of a VIX call option; the short VIX futures position is capped with long VIX calls struck about 25 points higher than the VIX futures price.
  • Cboe VIX Tail Hedge Index (VXTH) buys and holds S&P 500 stocks, and also often buys 30-delta call options on the CBOE Volatility Index® (VIX®).

Lower Volatility and Less Severe Drawdowns for VXTH Index That Buys VIX Call Options

The VIX Tail Hedge Index (VXTH) tracks the performance of a hypothetical portfolio that -

  1. Buys and holds the performance of the S&P 500® total return index, (a pre-tax index with reinvested dividends), and
  2. Often buys one-month 30-delta VIX call options; the weight of the VIX calls in the portfolio varies at each roll and is spelled out at

The VXTH Index buys the VIX call options with a goal of providing lesser volatility and smoother returns than the S&P 500 index over long time periods.

As shown in the first chart below, the VXTH had lower volatility than six well-known indexes over a ten-year period.

In addition, the VXTH Index had less severe maximum drawdowns (falls from peak to trough) than three key indexes.

While investors should keep in mind the fact that the costs of frequent purchases of options can add up, the charts above do show that prudent use of long positions in VIX call options had had the potential to provide lower volatility and less left tail risk.


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