VIX futures and options continue to flourish as traders look to capitalize on volatility as an asset class. But as the products proliferate, so does misinformation about them.
On the positive side, TABB Group has out a new report on the VIX products that I will cover in more detail in the coming days. It is also discussed here by the Financial Times.
But comments by CNBC analyst Ron Insana had me perplexed. In a recent appearance on the network, he said that shorting the VIX and shorting volatility are not the same thing.
"Being long or short the VIX does not mean that you are long or short volatility. If you want to bet that the market is going down, you buy the VIX. If you want to bet that the market is going up, you sell the VIX. So it is different than being short volatility."
For starters, you can't short the VIX, because it is a statistical calculation and isn't tradable. So we have to assume that he is talking about tradable VIX-related products, such as futures, options, and exchange-traded funds and notes.
But I don't understand how selling a VIX future is not selling volatility. In fact, for most retail traders, the best way to sell volatility is by selling VIX futures, buying VIX puts, shorting the VXX (iPath S&P 500 VIX Short-Term Futures Fund) or buying the XIV (VelocityShares Daily Inverse VIX Fund).
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