Can You Trade The CBOE Volatility Index (VIX)?
Many people like the idea of trading the VIX, especially in times of uncertainty and in many cases, as a protection against other positions they might be holding in “risky” assets.
Some experts argue that trading the VIX is the right thing to do at a given time and others say it would be a waste of money. The right answer requires a more thorough and complete study.
The first aspect to consider is your own experience and knowledge on the subject. If you don't know all the terms conditions and the market environment, you would have to be very lucky to earn on any investment or trade, let alone an advanced instrument such as the VIX.
Successful investors understand their investments and have assessed the risks before putting any penny into it.
There are more aspects to study before trading the VIX
If your knowledge of the VIX is nil or very little, it won’t be wise to invest in it blindly. The most advisable thing is that you carry out research and know about this investment product before making any transaction.
Another factor to consider is the behaviour of the VIX as market conditions change. Like everything, it has high peaks and low troughs. However, unlike usual instruments for trading, the VIX tends to spike up during times of uncertainty and high volatility. On the other hand, during stable and calm times, the VIX has a low value.
Also widely known as the fear index, the VIX is not a usual instrument for trading because it is a volatility index calculated based on implied 30-day volatility of S&P 500 options.
Understanding VIX’s behaviour
The behaviour explained, involves many risks when investing, since you may have to exit at a loss. To be able to win would include buying at a time of market decline and waiting for it to rise again. The problem with this is waiting for that peak; in many cases, you have to wait a long time.
The waiting period at the peak implies that you must have a backup capital that allows you to maintain the investment. Experts and entrepreneurs agree that no investor runs out of money at the time of investing. If you do not have enough capital, it is better not to make any investment in VIX until you get more.
Another factor that influences and is paramount are the values of ETNs in the VIX market. The benefits are very close to zero in the short and medium-term, so if you require immediate gains, it is not a recommended investment.
Studying the factors mentioned above invest in the VIX market is very difficult and risky. To profit with this type of investment, you require a high amount of time, money, and knowledge. Knowledge goes from the aspect of the medium, such as financial, statistical studies.
People require extra capital to support profit time and even the possibility of loss in investment. They have excellent knowledge or specialized advisors on the subject that can help them.
In conclusion, if you want to invest in the VIX, consider your options and environment to make a decision. Personally, it is a lousy investment option, since it carries a risk of loss too high. If you are investing as a beginner, do not even try unless you want to play "let's throw money."
In many blogs, you will see that many entrepreneurs invest in VIX, and they are doing well. It is a contradictory comment with the previous one, but it is right. Successful entrepreneurs have the knowledge, tools, and capital to minimize risk. Entrepreneurs know how to do ordinary people do not have that luck.