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A VIX-ing Paradox

17 Oct 2011

Article by: Lawrence G. McMillan
Published by: Barrons
Date: 5 Oct 2011

“Traders of volatility derivatives — futures, options, or exchange-traded funds and notes — often wonder why the VIX, or the Chicago Board Options Exchange Market Volatility Index, moves much more violently than do the derivative contracts that are based on it.

“This particularly vexes derivative holders when the market plunges and the VIX (which rises as fear grows) climbs by far more than the futures do. I use the futures as a measuring stick, because the prices of the others — options, ETFs, ETNs — are based on the futures’ prices.”

Full article (subscription required): Link

 
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