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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Herman J. Matos who wrote (239)	2/21/1997 10:56:00 PM
From: JohnV	of 14162

To all re: the VIX. The VIX shows the implied volatilities built into the price of current ATM calls on the OEX. Thus, the VIX will only tell you what is going on with the OEX but certainly, that can be a proxy for the rest of the market too. Why the OEX instead of the SP500? Liquidity I would guess. Check out your current WSJ C section to see what I mean. USES FOR THE VIX: As some of you may know, it is common for proprietary options traders to trade "volatility". This is done by buying/selling options on an index (like the SP500) and selling/buying futures to hedge. Thus, the trading P&L is entirely dependent upon time (theta) and volatility movements (vega or zeta depending on who you talk to but same thing). If you want more info on the tactic, I'll go into it but it might be long and frankly, I doubt any of us have the capital or time to really do it well. Since implied volatility is the only factor built into the famous Black-Scholes pricing model that is unobservable, options are often even quoted in terms of vol rather than price. The VIX is used as an indicator to aid in decisions to go long/short vol by comparing it to historical vol. Its probably used for other things too but I know for fact that this is one of the most common uses of it. You can find the VIX on most news services. I subscribe to Reuters and watch it occasionally. I also check it out on Bloomberg too. I'm sure that just about any package that allows you to get index quotes will allow quotes and charts on the VIX too. Just thought I'd share. Sorry if you all already knew this stuff. Take care.

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