VIX options are contracts that allow the buyer to purchase or sell a security at a set price within a given period. The security being traded is usually an index, like the S&P 500, or a futures contract for the CBOE Volatility Index (VIX).
VIX options are used by investors to hedge against potential losses from market volatility or to speculate on future changes in market volatility. Because VIX options are based on the VIX index, which measures expected volatility over the next 30 days, they can be used to hedge against short-term market volatility or to speculate on future changes in market volatility.
VIX options are settled in cash, so there is no need to own the underlying security, which makes VIX options an attractive way to trade volatility without purchasing or selling the underlying security. For those interested in learning more, read more here.
The types of VIX options in the UK
VIX options are traded on the Chicago Board Options Exchange (CBOE). The CBOE offers two types of VIX options: calls and puts. Call options in the UK give the buyer the right to purchase the underlying security at a set price within a given period. Puts options in the UK give the buyer the right to sell the underlying security at a set price within a given period.
VIX options are subject to dates and prices
VIX options are subject to expiration dates and exercise prices. The expiration date refers to when the option expires and trade must stop. The exercise price is the price at which traders can exercise the option. VIX options can be exercised on any business day but must be exercised before the expiration date.
VIX options are subject to American-style exercise
VIX options are subject to American-style exercise, meaning traders can exercise them on any business day up until the expiration date. On the expiration date, the option expires and can no longer be traded.
VIX options prices are volatile
The price of VIX options is volatile and depends on several factors, including the current market volatility and the expected future level of market volatility. As a result, VIX options can be expensive to trade.
VIX options are not for everyone
VIX options are not for everyone as they are complex financial instruments best suited for experienced UK investors comfortable with the risks. Before investing in VIX options, investors should understand how they work and the risks involved.
The benefits of investing in VIX options in the UK
There are several benefits of trading VIX options in the UK. First, traders can use VIX options to hedge against short-term market volatility or speculate on future market volatility changes. VIX options are settled in cash, so there is no need to own the underlying security, which makes VIX options an attractive way to trade volatility without purchasing or selling the underlying security.
VIX options are available to institutional and retail investors in the UK. Retail investors can trade VIX options through online brokerages. Institutional investors can trade VIX options through banks and other financial institutions.
The risks of trading VIX options in the UK
VIX options are risky because they are based on the VIX index, which measures expected volatility over the next 30 days. This means that the price of VIX options can fluctuate depending on several factors, including the current market volatility and the expected future level of market volatility. As a result, VIX options can be expensive to trade.
In addition, VIX options are subject to American-style exercise, meaning traders can exercise them on any business day up until the expiration date. On the expiration date, the option expires and can no longer be traded. Finally, VIX options are not for everyone.
Final word
Before investing in stocks or VIX options, investors should understand how they work. Contact a dependable and experienced online broker such as Saxo Bank to learn more about the risks involved.