what is vix option 
a vix option is a non equity index option that uses the cboe volatility index as its underlying asset understanding vix optionscall and put vix options are both available the call options hedge portfolios against a sudden market decline and put options hedge against a rapid reversal of short positions on the s p 500 index these options thus allow traders and investors to speculate on future moves in volatility the vix option which originated in 2006 was the first exchange traded option that gave individual investors the ability to trade on market volatility 1 the trading of vix options can be a useful tool for investors by purchasing a vix call option a trader can profit from a rapid increase in volatility sharp increases in volatility coincide with a short term price shock in stocks a volatility increase often but not always coincides with a downward trending market as such this kind of call option is a natural hedge and can be used very strategically over longer periods and tactically in the short term in many cases it can be a more efficient hedge than equity index options the vix is susceptible to a pattern of slow decline and rapid increase as such vix call options when well timed can be a very effective hedge however vix put options are more difficult to use effectively the put options can be profitable for traders who correctly anticipate that a market is about to turn around from a downward trend to an upward trend vix options settle in cash and trade in the european style european style limits the exercise of the option until its expiration the trader may always sell an existing long position or purchase an equivalent option to close a short position before expiration for advanced options traders it is possible to incorporate many different advanced strategies such as bull call spreads butterfly spreads and many more by using vix options however calendar spreads can be problematic since different expiration series do not track each other as closely as their equity options counterparts vix explainedthe volatility index of the cboe global markets cboe trades with the symbol vix however the vix is not like other traded instruments rather than representing the price of a commodity interest rate or exchange rate the vix shows the market s expectation of 30 day volatility in the stock market 2it is a calculated index based on the price of options on the s p 500 the estimation of volatility for these s p options between the current date and the option s expiration date forms the vix the cboe combines the price of multiple options and derives an aggregate value of volatility which the index tracks 3introduced in 1993 the volatility index vix was initially a weighted measure of the implied volatility iv of eight s p 100 at the money put and call options ten years later in 2004 it expanded to use options based on a broader index the s p 500 1 this expansion allows for a more accurate view of investors expectations on future market volatility vix values higher than 30 are usually associated with a significant amount of volatility as a result of investor fear or uncertainty values below 15 ordinarily correspond to less stressful or even complacent times in the markets because of its tendency to move significantly higher during periods of market fear and uncertainty another name for the vix is the fear index 