Trading Market Volatility with the VIX Option

Markets go up, and markets go down; you can take advantage of this by trading volatility with the VIX option. This volatility has been calculated and measured for decades, but more recently, it has been formally introduced as a financial instrument for trading. 

The volatility index is normally measured by a general market index, which could be the Dow Jones or S&P 500. It's a derivative product that behaves the same way as any option market does.

Before you consider trading the VIX option, understand the way the volatility is measured. This is actually very important for professional traders and less important for more casual traders. The way the VIX is calculated can change because of the tentative nature of market understanding.

In general, it is always best to trade using rules of thumb. The VIX is negatively correlated to the broader markets. Understanding that allows an investor to trade the VIX as a hedge against portfolio losses at markets peaks. What's also great is that the VIX stays within certain bounds, so be patient and capitalize when it reaches historical highs or lows by buying puts or calls.

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