Based on ATM options expiring 17 Aug, VIX is about 5.6 times higher than SPX indicating if S&P500 moves down by 1% then VIX would rise by 5.6% so this ratio can be applied when working out the number of contracts to trade VIX options while also the correlation of underlying isn’t exactly 1. There are also other similar alternatives such as SPX or SPY options but without going into too much details, VIX options have higher implied volatilities across the curves meaning bigger swings given the underlying is calculated from the option prices of SPX but also the trade can be done with smaller notional amount providing flexibility. For example, assuming S&P 500 at 4,200 and VIX 20 meaning annualised % with one standard deviation of normal distribution, so divide it by square root of 52 then multiplying by 4,200 equates to 116 points either way or 4,084 - 4,316 over the next week. One of the practical ways of using VIX numbers is to convert it to work out the implied trading range of S&P 500. The index calculation is a complicated one but VIX is often used not only as a barometer for market uncertainty but also serves as an underlying of VIX futures and options for both hedging market risk and speculation of directional volatility. According to the white paper from CBOE, the volatility Index (VIX) measures 30-day expected (implied) volatility of the S&P 500 Index options and the components of the VIX Index are near- and next-term put and call options with more than 23 days and less than 37 days to expiration.
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