Calendars benefit from a decay of the front month option or an increase in the volatility that inflates the back month option more than the front.
The VIX index is a low priced product with higher premium options. Given theof the VIX right now, it could be tempting to buy call in the fear index.
VIX options are extremely unique as they are actually priced off of the corresponding /VX future and not priced off the index itself.
Tom and Tony explain how this can cause unexpected losses if the front /VX future spikes, causing losses on the short call that are not covered by profits on the long call.
Historically, the team found that if these calendars lost more than the debit paid, they lost (on average) over 400% of the original price.
Tune in for Tom and Tony's full discussion of this thought-provoking trade example.