Can You Buy a Volatility Index?

You Can Not Buy a Volatility Index

Volatility indices have become quite popular in the recent years. Especially the VIX (CBOE Volatility Index) has been frequently mentioned in media, often as the so called “fear index”. Many people wonder if they can actually buy indices like the VIX, especially when they are very low and it is obvious to everybody that they must go up sooner or later.

Unfortunately, in general, volatility indices are not tradable.

But you can trade them indirectly – see the rest of this page.

Why You Can Not Buy a Volatility Index

A volatility index such as the VIX is in fact just a number – a kind of statistic that an exchange (in case of VIX it is Chicago Board Options Exchange or CBOE) publishes to provide information about what is going on in the market.

Being just a market statistic, a volatility index is not unlike other numbers like daily stock trading volume (you can’t buy or sell the trading volume number) or a stock index like Dow Jones Industrial Average or S&P500. Although many people are not aware of it, it is not possible to buy the Dow or S&P500 (at least not directly – of course you can buy a basket of all stocks in the index). The indices are just numbers.

Can You Buy Something Similar to a Volatility Index?

Fortunately, it is possible to get an exposure to the changes in value of volatility indices by buying futures, options, or exchange traded products, in the same way as you can buy futures, options, or ETFs on the stock indices (for example the ES futures or the SPY ETF on the S&P500).

In case of VIX you can buy:

Different futures, options, and ETPs provide different kinds of exposures and even different directions (some ETNs like the XIV are short VIX).

There are a few problems with these instruments – they do not replicate the VIX index exactly. The relationship between individual futures, options, or ETPs with the VIX index can be very complicated. You can often see the VIX index rising, but its futures, options, or ETNs stagnating or even declining in value.

You can also buy the options on S&P500 to get an exposure to the VIX index, because the index actually measures implied volatility of near term S&P500 options. However, it would require a lot of calculating and rebalancing (and a big portfolio size, because you would have to buy a wide range of S&P500 options in order to replicate the VIX accurately).

More Information

For more information about trading volatility, see: Is Volatility an Asset Class?

For the specifics of trading the VIX index (which are mostly valid for the other volatility indices too), see: Trading the VIX

And see also the rest of this website. Global volatility markets are big part of the universe I cover here.


Related pages


sample variance and standard deviationsum of x squared calculatordefine rsimean mode median calculatorannualized standard deviationema rsivxx barclaysadvantages and disadvantages of weighted average cost methodcalculate ss variance and standard deviationwhat does overbought meanexcel calculate standard deviationmacd indicatorsblack scholes examplevix realtimeultra etfsnormal density function exceloption stradlenorm dist exceloption black scholes calculatorexamples of hedge fundscalculating volatility for black scholestvix futuresema in excelhedge funds definition with examplesannualized standard deviation formulas&p ultra shortstandard deviation in maths13f analysisreward to variability ratio formuladefinition of kurtosisexcel profit formulaleptokurtic kurtosiscboe tickerhow is implied volatility calculateddifferent formulas in excelfinding standard deviation calculatorhow to calculate stdev in excelgreek letters in excelimplied volatility meaningcboe vix futureslong straddle optionswacc market value of debtvxx options settlementsquaring numbers calculatorwacc market value of debteuro usd etfcumulative formula excelstock rsi calculatormonospace font listcalculating standard deviation of returnshow to determine the strike price of an optionnotepad themeshort sp500 etfoptions calculator spreadsheetarithmetic mean in excelpercent variation calculator13f databasevix options trading strategieshistorical vixskew excelformula for standard deviation excelvariance function excelintrinsic value of put option formulakurtosis and skewness formulastandard deviation variance calculator13f sec filingtrading hedge fundsvariance shortcut formulamedian of numbers calculatorweighted average cost of inventory formulacoloured notepadsimple moving average vs exponential moving averagerelative strength index explainedportfolio management advantages and disadvantagesweighted average method of inventory valuationvariance calculation in excelfutures contract multiplierhedge fund filingscalculate realized volatilityvix chartintrinsic value of call option