WDIS: Two Yutes - Beginner Options Trading - July 16, 2021 - Volatility and its Products

published 1 week ago by tastytrade, Inc.

After some portfolio housekeeping, Tom and the yutes take a look at the volatility products VIX and VXX. Tom explains that while price often mean reverts (drifts back towards its average), it doesn't have to. Volatility ALWAYS does. It’s a math equation: volatility will always mean revert... you just don’t necessarily know when. Volatility tends to drift slightly down, which makes sense because the market tends to drift up (they’re inversely correlated). REMEMBER: When you use either VIX or VXX to trade volatility, selling puts is actually bearish and selling calls is bullish. This is not how our option-trading brains are used to thinking, but we do have to switch contexts, because when volatility goes up, the markets are bearish and when it goes down, the markets are bullish.

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