Chapter 15

Vertical Spreads with VIX Options

Chapter 14 discussed combining VIX options to construct a time spread. This chapter is the first of two chapters introducing spreads that use VIX option contracts with the same expiration dates.

Awide variety of payoffs may be constructed when combining options. Due to the unique nature of VIX index options, with the pricing based on a future contract price but settling in an index calculation, spreads using VIX index options are a unique breed. In this and the following chapter, the spread will be introduced as it would be applied based on an outlook on a stock or index. Then the same spread will be shown using VIX index options displaying the differences between VIX and standard option contracts.

Although not encompassing all potential spreads that may be created with VIX index options, this chapter will take common bullish, bearish, and neutral option spreads and demonstrate how the risk reward of these spreads differs for the same strategies on other indexes or equities.

This is the first of two chapters that will introduce option spreads strategies and discuss how using VIX options may result in a slightly different risk reward by taking a look at vertical spreads. A vertical spread was already introduced in Chapter 11 as an alternative to a long call.


A vertical spread involves two options that are the same type with the same expiration date. They differ in that each has a unique strike price and that ...

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