when the VIX jumped 64% from February 26th to February 27th, the nearest futures, the March ’07 VIX, moved less than half as much in percentage terms. Looking further out, the August ’07 VIX futures moved about one tenth of the VIX index, while the November ’07 VIX futures moved about one thirtieth as much as the VIX did.
Margin:Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 100% of the option proceeds* plus 15% of the aggregate contract value (current index level x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 10% of the aggregate contract value and a minimum for puts of option proceeds* plus 10% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rule 12.10.
For example,
1. if sell 13 put (of vix at 14) for 0.4: 0.4x100+(14-13)x100x15%=235, and 5k can sell 21 puts.
2. if sell 20 call of (vix@14) for 0.4: 0.4x100+14x100x10%=180, and 5k can sell 27 calls.
Vix on wikipedia.org
Vix White book http://www.cboe.com/micro/vix/vixwhite.pdf
Risk: there 2 of risk. one is OE vix price, which has a risk to trade over or below the strick price of sold call or put. this can be well controlled by only selling option deep OTM, for example, call above 25, put below 13 (or 40% away from current Vix). For the past year, there had never been a case for vix ended higher than 18 in OE day. So it may be safe to sell call with strike price over 19. but still need to be agile in watching vix. on the low price end of vix for put, it's more predicatible according to the current market performance.
the 2nd risk is margin maitance risk. I had lost half of my account value by not knowing enough of this risk. this is like a monster who can completely ruin your yard if you let him out of control!
