What are VXX options and how do you trade them?
VXX options are derivatives based on an exchange-traded note tracking VIX futures. Speculate on or hedge against market volatility with VXX options – here’s how.
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Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.
Visit help and support for more information.
Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We’re available from 9am to 5pm (UK time), Monday to Friday.
Contact us 0800 409 6789
Call 0800 195 3100 or email newaccounts.uk@ig.com to talk about opening an account.
Contact us 0800 195 3100
Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.
Visit help and support for more information.
Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.
Visit help and support for more information.
Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We’re available from 9am to 5pm (UK time), Monday to Friday.
Contact us 0800 409 6789
The content on this page relates specifically to listed options, which can be traded using our US options and futures account.
What is VXX?
VXX is an exchange-traded note (ETN) that tracks the VIX short-term futures. More specifically, VXX is a portfolio composed of the two front-month VIX futures that bear continuously changing weights, since futures contracts expire and must be rolled forward.
For this reason, VXX can experience a drag on performance when VIX futures are in contango. Futures are in contango when the front-month contract is worth less than the back-month contract. It's important to note that VXX is just one of many available volatility products, and its performance may differ from other products such as the VIX itself.
One of the most frequent opportunities for VXX to outperform the VIX occurs during periods of backwardation, which is when the front-month future is worth more than the back-month future.
While there are certain strategies that may be successful using VXX, studies show that there are often more efficient volatility products to trade in most scenarios. However, understanding the relationship between various volatility products, including VXX, is crucial for creating a strategy that best suits your trading goals and risk tolerance.
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What's the difference between VXX and VIX?
While both VXX and VIX are related to market volatility, they have several key differences:
Nature: the VIX is an index measuring expected market volatility, while VXX is an exchange-traded note tracking VIX futures
Tradability: the VIX cannot be directly traded, but VXX can be traded like a stock
Underlying: the VIX is based on S&P 500 options prices, while VXX is based on VIX futures contracts
Here's a table summarising the key differences:
|
VXX |
VIX |
Name |
Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN |
Chicago Board Options Exchange's CBOE Volatility Index |
Underlying index |
S&P 500 VIX Short-Term Futures Index Total Return |
S&P 500 Volatility Index |
Structure |
ETN (exchange-traded note) |
Index |
Tradeable underlying |
Yes |
No (but can be traded via derivatives) |
Options style |
American |
European |
Options settlement |
Physical delivery |
Cash-settled |
Leverage |
1X |
1X |
Liquidity |
High |
Very high |
How do VXX options work?
VXX options work by giving you exposure to the S&P 500 VIX Short-Term Futures Index. They achieve this by combining two VIX futures products: one future is always the front-month expiration cycle, while the second is the next-month expiration cycle.
The goal of VXX is to provide a product that tracks the percentage change of a 30-day VIX futures contract. Since a constant 30-day VIX future doesn't exist, two futures must be combined to reach this 30-day average.
VXX options are derivative contracts based on this ETN. They give you the right, but not the obligation, to buy (call options) or sell (put options) VXX at a predetermined price before or on a specific date. These options enable you to speculate on the future direction of VXX or hedge your existing positions.
Research VXX
Study how VXX tracks VIX futures, its tendency to drag over time when futures are in contango, and how it responds to changes in market volatility. Familiarise yourself with its historical performance and correlation with the S&P 500.
Learn about options trading
Understand key concepts like strike prices, expiration dates, and the Greeks. Learn about common strategies such as covered calls, protective puts and spreads. Be aware of the risks, including the potential loss of premium and assignment.
Open a US options and futures account with us
Fill in a short form, where we’ll ask you about your trading experience. Once we’ve verified your details, you’ll be able to fund your account and start trading. You can also withdraw your money quickly and easily.
Search for VXX in the platform
Use the search function on our US options and futures platform to find VXX options. Then, select the one(s) you’re interested in to open the deal ticket.
Analyse market conditions
Check the current VIX level and recent trends. Consider broader market conditions and any upcoming events that might impact volatility. Review the term structure of VIX futures.
Choose your strategy
Decide whether you want to buy or sell options and select appropriate strike prices and expiration dates. Always pick a strategy that aligns with your expectations. Consider factors like time decay and implied volatility when choosing strike prices and expiration dates.
Place your trade and monitor your position
Once you’ve opened the position, keep track of your trade and be prepared to adjust or close it as market conditions change. Lastly, always have an exit strategy in place.
When is the best time to trade VXX?
The best time to trade VXX depends on your strategy, but increased activity often coincides with periods of heightened market activity and volatility. The market open and close tend to be particularly active, as a disproportionate amount of buying and selling occurs in the stock market during these times. This elevated trading activity typically leads to increased volatility, which can create opportunities.
Additionally, trading VXX can be especially interesting before and after major economic events. These include the release of important economic data such as unemployment figures, inflation reports or central bank policy decisions. Such events can cause significant shifts in market sentiment and volatility, potentially leading to substantial movements in VXX.
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