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. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  2. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  3. Index Option

    A financial derivative that gives the holder the right, but not ...
  4. VIX - CBOE Volatility Index

    The ticker symbol for the Chicago Board Options Exchange (CBOE) ...
  5. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  6. Underlying

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