Question By Betu "Trading Volatility on Index Options?" How to trade volatility through index options ? What are the rules to kept in mind while trading volatility ? Asked on 3 May 2011 Explosive Options Mentoring Course Learn how to make consistent explosive options profits using Mr. OppiE's proprietary options swing trading system mentored by Mr. OppiE himself! Answered by Mr. OppiE Hi Betu, Trading volatility is one of the more advanced aspects of options trading and I trust that you have the necessary experience and background in the more basic aspects of options trading before undertaking this. The most direct means of trading volatility on the market is through buying VIX Options. The VIX, Volatility Index, is calculated based on S&P500 options. As such, if you expect volatility to rise on the S&P500, all you have to do is buy call options on the VIX. Similarly, if you expect volatility to drop, all you have to do is buy put options on the VIX. However, if you wish to speculate on volatility through Index Options directly, you could use options strategies such as the Straddle. To speculate on volatility rising, you could use a Long Straddle or the Short Straddle to speculate on volatility dropping. A few tips to note for such strategies is that: 1. Options Vega, the greek governing an option's sensitivity to changes in implied volatility, rises with longer expiration. As such, index options with longer expiration should be used for speculating on volatility. 2. In order to make sure you are speculating only on volatility and not be affected by the directional risk of the underlying index, you should also make sure your resultant position is Delta Neutral. 3. Volatility tends to rise when market falls, as such, betting on volatility also takes on somewhat of a directional bet. You might want to make sure you are totally familiar with the concept of Implied Volatility and Vega before proceeding. In conclusion, you can speculate on index volatility either directly through VIX options or volatile options strategies using options on the index itself. It is important to be totally familiar with advanced options concepts such as greeks and volatility and have plenty of paper trading experience before trading volatility for real. $29.90 Only! High Yield Covered Call: Finding the Perfect Stocks For Covered Calls Perfect for all Options Traders! Original eBook by Optiontradingpedia.com, the number one online options trading encyclopedia! This eBook Covers: The Secret to looking for the PERFECT stock for Covered Calls The number of ways to write Covered Calls The two ways of measuring Covered Call returns Most Importantly, how to automatically look for high yield Covered Call opportunities to make up to 25% a month! This $29.90 eBook teaches you all these and more! Average Reader Rating : 4.5 / 5 Optiontradingpedia.com is a Masters 'O' Equity company and uses Masters 'O' Equity payment gateway Response by Betu ... Reply by Mr. OppiE... Response by Others... Add Your Response Here

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