Options 101: Using VIX options/futures and volatility products as hedges.
- What is the VIX? How is the VIX calculated?
- How are VIX options priced?
- How do the greeks work with VIX options?
- VIX is not a perfect hedge that offers pure inverse correlation to the S&P.
- Beware of the VIX settlement process and some of the other issues traders encounter during it. VIX settlement was 10/16 this month.
- There is an entire universe of VIX-related products out there including VXX, TVIX, etc.
Listener Mail:It's like Dear Abby, but for options
- Question from Neal Tillman, CFA: We are at all-time highs in the market right now. Most of my clients account are long equity. My average account is sitting on gains of $60K-$100K for the year. I do not want to lose those gains if the market corrects, but I also do not want to sell these positions and miss out on future rallies in the broad market. For the sake of this discussion let's assume I am sitting on a $1M portfolio with heavy exposure to SPY. How would I insure this portfolio to protect a $100K gain using SPY options? How much would it cost me to protect that $100K gain through the end of the year? Your insight on this issue would be most appreciated.
- Question from Alamo: If I buy puts to protect a stock that I already own in my account, does that count as a sale for tax purposes? Is that a taxable event?
