So the idea is this, if you go to VIX there is no comparable way to trade spot VIX. There are VIX futures of course, and then there are the ETNs which are various replications based on the VIX futures. But if you would like to actually trade the spot VIX (and not future term structure of volatility - which VIX futures represent), you need to buy actual cash options expiring in 30 days and delta hedge in a very specific ratio.
When you do that, the only way to get long spot volatility is therefore take on theta risk. It costs you something to get long spot volatility, otherwise spot volatility is necessarily a range bound calculation with no cost of carry
VIX futures are priced such that in low volatility there is a steep contango to account for the fact you must pay more to be long VIX futs, b/c people are aware that this round bound nature exists.
VIX itself (or in this case ETH vol index), is constantly (nearly real time) representing a new set of option weights across multiple expirations constantly
Spot VIX is not representative of a fixed set of options or their payoffs or values.
So in that regard, it maybe is kind of like a free lunch to trade this b/c it’s necessarily a mean reverting process without any such attached cost of theta or contango/backwardation (accounting for the mean reversion)
Meaning, I would expect people to be willing to pay more than oracle when vol is low and less than oracle when vol is high if this were a product, relative to their ability to get volatility exposure elsewhere.
I’m not sure if the above analysis is correct or on-point but I thought it was worth mentioning.
George Simpson/ npSharkie (on Terra discord)
p.s. I’m a huge supporter of new assets like this being listed on Mirror, I would love hedge assets (inverses), new stocks, a few derivatives, pre-ipo, futs etc. I just want to make sure we make sure the structure we adopt is robust! Again I could be missing something.