OVX, The Crude Oil VIX

Posted by Bull Bear Trader | 7/17/2008 07:02:00 AM | , , | 0 comments »

The Chicago Board Options Exchange has introduced a Crude Oil Volatility Index (OVX), similar to the CBOE VIX which tracks volatility and fear in the stock market. The contracts have 30 day contract durations and allow traders to profit from oil trading in both directions. The OVX holds near-term futures contracts and cash to compute the level of volatility in the West Texas Intermediate crude markets. Should you trade it? As John Carter from Trade the Markets was recently quoted in a CNBC article: "I wouldn't see a lot of applications for the retail investor unless they're a little more sophisticated." Good advice indeed. It is also interesting how these types of vehicles seem to come out just as the markets they are taping into are topping or rolling over. Makes you wonder - but that is a discussion for another day. Adam Warner over at the Daily Options Report also had a nice post a few months back about using the VIX, but not trading it, since it is a derivative of a derivative. Furthermore, with retail VIX trading the guy on the other side of the trade probably knows more than you do. The post is still worth a read. Check it out.