VIX Option

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DEFINITION of 'VIX Option'

A type of non-equity option that uses the CBOE Volatility Index as the underlying asset. This is the first exchange-traded option that gives individual investors the ability to trade market volatility. Trading VIX options can be a useful tool for investors wanting to hedge their portfolios against sudden market declines, as well as to speculate on future moves in volatility.

INVESTOPEDIA EXPLAINS 'VIX Option'

A trader who believes that market volatility will increase now has the ability to profit on this outlook by purchasing VIX call options. Sharp increases in volatility generally coincide with a falling market, so this type of option can be used as a natural hedge rather than using index options. For advanced option traders, it is possible to incorporate many different advanced strategies - such as bull call spreads, butterfly spreads, etc. - by using VIX options.

RELATED TERMS
  1. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  3. Index Option

    A financial derivative that gives the holder the right, but not ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. VIX - CBOE Volatility Index

    The ticker symbol for the Chicago Board Options Exchange (CBOE) ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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