how to trade the vix
the vix has paved the way for using volatility as a tradable asset albeit through derivative products cboe launched the first vix based exchange traded futures contract in march 2004 followed by the launch of vix options in february 2006 2such vix linked instruments allow pure volatility exposure and have created a new asset class active traders large institutional investors and hedge fund managers use the vix linked securities for portfolio diversification as historical data demonstrate a strong negative correlation of volatility to the stock market returns that is when stock returns go down volatility rises and vice versa like all indexes one cannot buy the vix directly instead investors can take a position in vix through futures or options contracts or through vix based exchange traded products etps for example the proshares vix short term futures etf vixy and the ipath series b s p 500 vix short term futures etn vxxb are two such offerings that track a certain vix variant index and take positions in linked futures contracts active traders who employ their own trading strategies and advanced algorithms use vix values to price the derivatives which are based on high beta stocks beta represents how much a particular stock price can move with respect to the move in a broader market index for instance a stock having a beta of 1 5 indicates that it is theoretically 50 more volatile than the market traders making bets through options of such high beta stocks utilize the vix volatility values in appropriate proportion to correctly price their options trades following the popularity of the vix the cboe now offers several other variants for measuring broad market volatility examples include the cboe short term volatility index vix9d which reflects the nine day expected volatility of the s p 500 index the cboe s p 500 3 month volatility index vix3m and the cboe s p 500 6 month volatility index vix6m products based on other market indexes include the nasdaq 100 volatility index vxn the cboe djia volatility index vxd and the cboe russell 2000 volatility index rvx 6options and futures based on vix products are available for trading on cboe and cfe platforms respectively 