Volatility of Volatility and Other Facets of VIX Options Discussed at CBOE RMC

One of the final discussions today at CBOE RMC focused on the Volatility of Volatility and Other Facets of VIX Options.  The three presenters were Joe Aiken, Portfolio Manager, Malachite Capital Management, Art Lu, Director, Equity Quant Trading Strategy, Citigroup, and a RMC favorite Dominic Salvino, VIX Specialist, Group One, LLC.

Highlights for each speaker’s presentation appear below –

Dominic Salvino

  • He noted that VIX Weeklys seem to be catching on quite well with the futures having been introduced in July and options in October
  • In addition he pointed out that VIX options turned 10 years old last week without anyone even noticing – this could be anecdotal to how established VIX options and futures have become

Art Lu

  • Noted that there are challenges for modeling volatility of volatility – futures vs. spot, instrument roll, mean reverting nature, there are persistent regimes, and volatility is very technical.
  • He noted the difference between hedging with SPX puts versus VIX calls with an important takeaway being that traders should take profits on VIX hedges aggressively
  • Another point made was that the volatility of an asset and the volatility of sentiment can and does differ

Joe Aiken

  • Brought up regimes of interest in using VIX options and futures showing a chart highlighting what seems to spark increases in VIX trading
  • He also showed fund flows into the ETPs and how unstable those flows have been over time
  • The performance of systematic hedging strategies was discussed noting that they have underperformed as of late, but also noting that we have limited data to work with