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October 29, 2008 Issue 21 |
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For more information on the CBOE Volatility Index® ("VIX"), volatility and variance futures including brokers, ISVs, symbols and product specifications, visit www.cboe.com/cfe. For VIX market information including current quotes and historical data, please visit www.cboe.com/cfe. To contact the CFE, please click here. |
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Welcome to Futures in Volatility!Futures in Volatility is a monthly CFE publication focused on volatility and variance futures, featuring volatility market reports, trading strategies and feature articles from contributors such as Larry McMillan. CFE is the home of volatility futures, featuring CBOE Volatility Index (VIX) futures, DJIA® Volatility Index futures, Three and Twelve-month S&P 500® Variance futures and S&P 500 BuyWrite Index futures. CFE makes trading volatility easier than ever. Futures in Volatility includes several sections: Market Summary and Analysis, Trading Strategy Ideas, and Events. Market Summary and Analysis includes commentary related to VIX, VIX futures and other volatility products, as well as charts and data related to these markets. Trading Strategy Ideas features strategies focused on trading volatility products. And, Events features upcoming CFE and Chicago Board Options Exchange (CBOE®) conferences, seminars and webinar presentations. |
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Contact Information
VIX Futures Last Trade Dates
Announcements
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The Wildest Month on Record
The selling in the broad stock market S&P 500® Index (SPXSM) has continued at an even greater pace in the last month, with the VIX® and its derivative products exploding to new heights as a result. Some of the behavior in these products was extreme, to say the least. The bottom line, however, is that the derivatives behaved more or less as they are supposed to in times of crisis. They did so by providing excellent hedges and protection for stock owners and anyone else seeking protection from increased volatility. Of course, speculators who traded VIX from the long side did well also.
Clearly, traders are not paying up for S&P 500 Index options expiring past the nearest month, which are the driving force behind the VIX calculations. Remember that VIX itself is a weighted, 30-day volatility, using, at this time, the strips of November and December S&P 500 Index options. Experienced VIX traders also keep an eye on VIN, the VIX of the near-term options (November, in today's case) and VIF, the VIX of the far-term options (December, in today's case). They help to explain the difference between VIX and the front-month futures.
For example, last August if you had felt that VIX was going to increase sometime in the next six months, you might have decided to buy a February 2009 VIX futures contract to express that opinion. You would have been disappointed if you had. The February VIX futures have advanced from approximately 23 to 35 as VIX has exploded from 20 to 70. The much better choice is the near-term futures contract, for it will always mirror VIX movements better. So, the better strategy is to buy the near-term futures contract when you are trying to express an opinion on VIX and just keep rolling it over from month to month. You would thus have bought October futures at 23 and they settled at 63.04 this week.
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![]() About CBOE Futures Exchange CBOE Futures Exchange (CFE®) is an all-electronic open access exchange, which utilizes the CBOE’s® state-of-the-art trading system, CBOEdirect®. CFE is the leader in providing innovative volatility risk management futures products, including VIX® and variance futures, which enable market participants to manage volatility risk, as well as trade volatility directly. Access to CFE is available through numerous brokers, ISVs or directly via the CBOEdirect API or CBOE’s HyTS® terminals. CFE trades are cleared by the AAA-rated Options Clearing Corporation (OCC). To contact the CFE, please click here. About Larry McMillan and McMillan Analysis Corporation Professional trader Lawrence G. McMillan is perhaps best known as the author of Options As a Strategic Investment, the best-selling work on stock and index options strategies, which has sold over 200,000 copies. An active trader of his own account, he also manages option-oriented accounts for certain individuals and in addition, he is the Portfolio Manager of The Hardel Volatility Arbitrage Fund (a hedge fund). In a research capacity, he edits and contributes to his firm’s publications: Daily Volume Alerts, The Option Strategist and The Daily Strategist—derivative products newsletters covering equity, index, and futures options. Finally, he speaks on option strategies at many seminars and colloquia in the United States, Canada, and Europe. He is quoted in publications such as The Wall Street Journal, Barron’s, Technical Analysis of Stocks and Commodities, Data Broadcasting’s Exchange magazine, Futures Magazine, theStreet.com, and Active Trader Magazine. In these capacities, he is the President of McMillan Analysis Corporation, which he founded in 1991. Prior to founding his own firm, Mr. McMillan was a proprietary trader at two major brokerage firms—primarily Thomson McKinnon Securities, where he ran the Equity Arbitrage Department for nine years. * This is a paid advertisement. The inclusion of these advertisements should not be construed as an endorsement of any product, service, or Web site or as an indication of the value of any claims, recommendations or other information contained therein. Copyright © 2008 CBOE Futures Exchange, LLC. All rights reserved. CFE®, CBOE®, Chicago Board Options Exchange®, CBOE Volatility Index®, VIX® are registered trademarks of Chicago Board Options Exchange, Incorporated. The information in this newsletter is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions that should be referred to for additional detail and are subject to changes that may not be reflected in this newsletter. The strategy discussions contained in this newsletter are designed to assist individuals in learning how volatility and variance futures as well as other volatility-based derivatives work and understanding various volatility derivatives strategies. The strategies discussed are for educational and illustrative purposes only and should be not be construed as a recommendation to buy or sell a security or futures contract or to provide investment advice. Additionally, commissions and other transaction costs have not been included in the example strategies and will impact the outcome of security and futures transactions and must be considered prior to entering into any transactions. Investors considering volatility-based derivatives should consult a professional tax advisor as to how taxes affect the outcome of contemplated transactions in volatility-based derivatives. The charts and/or graphs contained herein are intended for reference purposes only. Past performance is not indicative of future results. The views of third party contributors to this newsletter are their own and do not necessarily represent the views of CFE or its affiliates. Third party contributors are not affiliated with CFE. This newsletter should not be construed as an endorsement or an indication by CFE of the value of any third party product or service described in this newsletter. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The methodologies of the CBOE Volatility Index (VIX) and the CBOE DJIA Volatility Index (VXD) are owned by CBOE and may be covered by one or more patents or pending patent applications. |
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