October 31, 2013

Advisors Option: The World of VIX

1 hour

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?

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By The Options Insider Radio Network

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