Market Measures

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The Sensitivity of Volatility Products

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Option sellers are also selling volatility. In general, we reference the VIX as the implied volatility indicator for the S&P 500 but there are other products that track S&P 500 implied volatility. Some products that track S&P 500 implied volatility are:

VIX: Volatility Index

VXXB: Short-Term VIX Futures ETN

UVXY: 1.5x Short-Term VIX Futures ETF

SVXY: -0.5x Short-Term VIX Futures ETF

With all of these volatility products to trade, which should we choose?

The Study:
  • VIX, VXXB, UVXY and SVXY
  • 2012 - 2019
  • Compared “sensitivity” of these IV products to movement in the S&P 500 to gauge which presents better potential profitability when buying low IV or selling high IV
Results:

Each volatility product performs as expected and the sensitivity of each is priced into the efficient options markets on these products. This can be seen by the distance of the 1 standard deviation put options which is proportionate to their downside sensitivity.

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