Investor's jitters have Chicago volatility index surging

AlfredSokol said: "The jitters have everyone freaking out, even in the [url=http://www.ft.com/cms/s/b3eb7a92-48fa-11dc-b326-0000779fd2ac.html]options market[/url]. Trading that volatility is one way to hedge against that very volatility! [quote] Calculated from the implied volatilities of various S&P 500 index 30-day options, the Vix is an expression of both Wall Street’s fear and its appetite for risk. Both extremes have been reached since the start of this year, demonstrating clearly that the volatility of volatility itself is now a key factor in the capital markets. As a result, traders are anxious to take bets on the direction and extent of volatility as well as on the factors that drive it, trading it as an asset class in its own right. [/quote] Do you like the idea of playing volatility?"

Darren said: "Seems as legit as any other option. It can be measured."

lil dickie said: "I like the idea but I have never done it."

holzie said: "No, I don't like it. It's like playing direction...except with few more curveballs :)"

AnonBroker said: "There are some problems with playing the VIX. First, it is based on the volatility futures markets so actual volatility in the market is not as prominent as you would like - especially if you are using it to hedge. Second, and probably more importantly, the options are European - so you have no way to exercise when you see a volatility burst like the one we are currently in. The VIX may be through the roof, but your in the money option prices won't go up too much because the volatility is not expected to last until expiration. If you are able to catch a volatility cluster close to expiration you can make some money."

lil dickie said: "[QUOTE=AnonBroker]There are some problems with playing the VIX. First, it is based on the volatility futures markets so actual volatility in the market is not as prominent as you would like - especially if you are using it to hedge. Second, and probably more importantly, the options are European - so you have no way to exercise when you see a volatility burst like the one we are currently in. The VIX may be through the roof, but your in the money option prices won't go up too much because the volatility is not expected to last until expiration. If you are able to catch a volatility cluster close to expiration you can make some money.[/QUOTE] Did not know the options were European. That sort of kills things in a sense."