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VIX

Honest reporting on shorter-term trading activity and ideas
langley59
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Re: VIX

#116426

Postby langley59 » February 7th, 2018, 6:44 pm

langley59 wrote:Buying and holding the ProShares short VIX short term futures ETF 'SVXY' has returned approx 1600% since inception 6 years ago. A modified buy and hold strategy of holding a core position and then adding to it when vol spikes and SVXY falls, taking profits on the additional positions as vol settles down again and SVXY rises again returns even more.

This is what I wrote in my first post on this subject and I stick by it. We should realise that volatility has been exceptionally low over the past year or so, a more normal level over ten years is 15 to 20. I have run this strategy for a number of years but had been out of the market since late last year as I became wary of the prolonged abnormally low level of the VIX and the possibility of a shock. Well we certainly got that on Monday and I viewed it almost as a reset of SVXY back to when it started in 2011 and an opportunity to load up again in the 10s. I have never held more than a small core position long term and only ever loaded up when volatility spiked, taking this extra risk off again once it settled back down.

Having said all that the blow up of XIV has caused me to rethink. I deliberately use SVXY, an ETF with no poison pill clause in the prospectus unlike XIV, an ETN with said poison pill clause. Going forward rather than contango harvesting through SVXY I may consider just shorting the VIX futures when VIX spikes for a short term trade. Intuitively it feels dangerous shorting something with unlimited upside however as someone once said VIX is like a feather in the wind, it may get blown up high above street level but it always settles back down. Again just my thoughts, not a recommendation, this is high risk stuff.

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Re: VIX

#116481

Postby tjh290633 » February 7th, 2018, 11:11 pm

http://ggc-mauldin-images.s3.amazonaws. ... 7_2018.pdf is worth a read.

Once Again: “Kill the Quants (and the Levered ETFs and ETNs) Before They Kill Our Markets”

By Douglas A. Kass, Seabreeze Partners Management Inc.
February 6, 2018


TJH

odysseus2000
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Re: VIX

#116550

Postby odysseus2000 » February 8th, 2018, 10:19 am

langley59
This is what I wrote in my first post on this subject and I stick by it. We should realise that volatility has been exceptionally low over the past year or so, a more normal level over ten years is 15 to 20. I have run this strategy for a number of years but had been out of the market since late last year as I became wary of the prolonged abnormally low level of the VIX and the possibility of a shock. Well we certainly got that on Monday and I viewed it almost as a reset of SVXY back to when it started in 2011 and an opportunity to load up again in the 10s. I have never held more than a small core position long term and only ever loaded up when volatility spiked, taking this extra risk off again once it settled back down.

Having said all that the blow up of XIV has caused me to rethink. I deliberately use SVXY, an ETF with no poison pill clause in the prospectus unlike XIV, an ETN with said poison pill clause. Going forward rather than contango harvesting through SVXY I may consider just shorting the VIX futures when VIX spikes for a short term trade. Intuitively it feels dangerous shorting something with unlimited upside however as someone once said VIX is like a feather in the wind, it may get blown up high above street level but it always settles back down. Again just my thoughts, not a recommendation, this is high risk stuff.


The way the vix is constructed, as outlined in the prospectus, is that it is designed to be used by day traders & not long term holders as it is constructed to decay over time and has been reverse split several times because of this inherent decay. It is therefore an excellent candidate to short over the intermediate to longer term time frame & the historical results support that.

What smells wrong about the recent action, correct me if I am wrong, is that the inverse svxy was reset via a valuation in an after hours measurement in such a way that the new valuation does not reflect the inverse change in the vix which the svxy is designed to track. It seems to me that big players overwhelmed the svxy by shorting it & ramping the vix to produce this result. A nice piece of market timing or manipulation depending on ones perspective, but no fun if you were on the other side, long the svxy.

With this fall in the value of svxy now accepted by the authorities I think one has to be wary of vix products due to this kind of potential manipulation or extreme volatility, but the svxy still should rise over time as the vix should fall. It is just that the volatility of the vix may become too extreme to handle at times.

Dunno, but the old reserve of keeping all positions to sizes such that a complete loss of one doesn't cause trouble is perhaps the only sensible way to proceed & helped me in this case. Still kind of feel I was the sucker here, but there is nothing I can do about it.

Regards,

langley59
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Re: VIX

#116614

Postby langley59 » February 8th, 2018, 1:52 pm

I read a report which suggested that it was Credit Suisse themselves, the issuer of XIV, that caused the VIX to spike late in the day on Monday, ie. they were covering a massive proprietary short volatility position. If this is the case then it would seem that their actions wholly or in part caused their ETN to suffer an 80% fall in implied value in the extended hours market and therefore triggered the termination clause in the note! I have no idea whether this is fact or speculation.

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Re: VIX

#116689

Postby langley59 » February 8th, 2018, 5:09 pm

You can buy SVXY on IG Index as a spread bet if that is any help, DFB, Mar, Jun, Sep contracts available.

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Re: VIX

#116718

Postby hiriskpaul » February 8th, 2018, 6:52 pm

For anyone considering buying SVXY, note that it does not have UK reporting status. As such gains on disposal are subject to income tax rather than capital gains tax.

I do not appear to be restricted by the KID nonsense in my IG share dealing account, but Hargreaves Lansdown will not let me purchase.

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Re: VIX

#116758

Postby odysseus2000 » February 8th, 2018, 9:35 pm

I do not appear to be restricted by the KID nonsense in my IG share dealing account, but Hargreaves Lansdown will not let me purchase.


Interesting how different brokers are treating svxy along with the chatter that some banks (US?) have got themselves into trouble with large derivative positions based around vix products. Finding this difficult to believe but banks can be quite inventive and dumb at times.

Folk are talking about a 1987 like problem in US banks.

Clueless as to whether this is true or baloney, but there is no question that the markets and banks are weak with simultaneous falls across all the S&P sectors. Utilities (XLU) were looking to buck the trend earlier but it too as rolled over.

Meanwhile all the naysayers who have been predicting incorrectly a large crash since 2009 are now coming out and saying they warned us and the worst is yet to come.

At some point probably a good buying opportunity but few signs currently that now is a good time. The way Twitter and Snap have held up is positive, but there are many more negatives.

Might hope the new Fed chiefs comes out and says all is well, but he hasn't so far built a reputation like Yellen had so might be ignored.

In the by and by I would not be surprised to see class action suits against the SVXY provider, but I would be surprised if they achieved anything.

Regards,

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Re: VIX

#116873

Postby langley59 » February 9th, 2018, 1:27 pm

odysseus2000 wrote:
In the by and by I would not be surprised to see class action suits against the SVXY provider, but I would be surprised if they achieved anything. Regards,

I presume you meant to say against the XIV provider?

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Re: VIX

#116886

Postby odysseus2000 » February 9th, 2018, 2:04 pm

langley59
I presume you meant to say against the XIV provider?


Not sure, perhaps both, but XIV was terminated according to the prospectus so the provider can argue investors were suitably informed.

As I understand how svxy was re-valued it doesn't correlate with, again as how I see it, the change in the vix.

No doubt the provider will argue that svxy was revalued according to its rules, such that I would imagine any class action will be about whether the rules were sensible and actioned correctly.

I have been invited to join many US equity class action suits over far lesser things, all of which I have not bothered with. I suspect this event will spawn more but that they will achieve nothing.

I am still hearing stories of great hedge fund losses over svxy and a paired trade in US mortgages. I.e. folk were using svxy collateral to buy US mortgages and now suddenly svxy is greatly reduced in value causing trouble in US mortgage markets. May be codswallop, just don't know. US banks have been weak but so as most everything else.

Everything looks early to me. It may all just blow over and be forgotten like previous flash crashes or this may just be the beginning.

I have no clue and am just watching to see what happens.

Yesterday was complicated by the good results and rapid up moves in Twitter and Snap followed by a big sell off, although these two did hold up, closing higher. If these and the other leaders, particularly amazon, get hit today I would expect the markets to go lower, if not perhaps we have seen the worst.

I have no prediction.

Regards,

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Re: VIX

#117530

Postby gbjbaanb » February 12th, 2018, 10:04 am

odysseus2000 wrote:chatter that some banks (US?) have got themselves into trouble with large derivative positions based around vix products.


Truth spoken in jest?

http://www.alexcartoon.com/index.cfm?cartoons_id=5749

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Re: VIX

#117598

Postby DiamondEcho » February 12th, 2018, 1:21 pm

Short excerpt from an article in today's DT:

'The jobs data [US @end of last week] validated a set of market-related fears. As the duration of the unnatural period of calm extended into record territory, investors started to worry about stretched valuations. The surge in share prices in the first four weeks of the year, about 7.5pc, was unsustainable. After years of seeking safety in bonds, investors had regained their appetite for risk. The capitulation of the remaining unbelievers created the perfect environment for an accident.
Once markets began to unravel, the machines finished off what the humans had begun. There is nothing new about computerised programme trading (it has played a key role in crashes since at least 1987) but it is becoming a more significant factor. The automated de-risking of portfolios once a series of too-clever-by-half low-volatility trading strategies turned sour last week exaggerated market movements even if it didn’t actually cause them.
'
[Tom Stevenson/Director of Fidelity Intl.]
http://www.telegraph.co.uk/business/201 ... g-journey/

Another article made a comparison between 1) how VIX had been sold pre the spike-down in stocks, and 2) the '''lazy assumption''' behind an unhedged carry-trade. I.e. little/no expectation of anything changing in the near-term. So when it changed the reaction was swift and arguably overdone.

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Re: VIX

#117660

Postby hiriskpaul » February 12th, 2018, 4:31 pm

FWIW I took out a bet on Friday that we have seen the last vol spike and it is downhill from here (short Mar SPX puts at 5400). So far so good today. Last week I also bet against a collapse in oil prices (Short Apr WTI puts at 5400). That one is not going too well, but a bit better today.

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Re: VIX

#117763

Postby odysseus2000 » February 12th, 2018, 11:48 pm

Looking at the backwardisation in the vix:

http://vixcentral.com

Once this current contract closes (Wed I think) there is not much slope in the backwardisation which made me wonder if svxy might be good.

I had decided I would not touch svxy ever again, but the more I looked at the above chart, the more it seemed like an opportunity, so I added to my heavily underwater svxy.

Hope I am not buying at a top based on todays action, but if the vix returns to contango, svxy ought to fly.

Regards

langley59
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Re: VIX

#117766

Postby langley59 » February 13th, 2018, 12:31 am

odysseus2000 wrote:Looking at the backwardisation in the vix:

http://vixcentral.com

Once this current contract closes (Wed I think) there is not much slope in the backwardisation which made me wonder if svxy might be good.

I had decided I would not touch svxy ever again, but the more I looked at the above chart, the more it seemed like an opportunity, so I added to my heavily underwater svxy.

Hope I am not buying at a top based on todays action, but if the vix returns to contango, svxy ought to fly.

Regards


Ditto. Just a lingering doubt in my mind however given the termination of XIV.

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Re: VIX

#117864

Postby GoSeigen » February 13th, 2018, 1:32 pm

langley59 wrote:Ditto. Just a lingering doubt in my mind however given the termination of XIV.


IMO with the VIX in backwardation vol should be bought, not sold.


GS

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Re: VIX

#117873

Postby odysseus2000 » February 13th, 2018, 2:24 pm

GoSeigen
IMO with the VIX in backwardation vol should be bought, not sold.



Yes, but the vix has moved a lot & the forward curve, after the current contract closes, is much flatter in backwardisation.


Clearly the time to buy volatility was before this big move, now I am not so sure.

As I currently see things there is more chance of a fall in volatility compared to a rise. Sure there are still stories of big hedge funds/ banks in trouble because of the violent rise in volatility. If these stories turn out to be true then one could see the vix spike up from these levels, if not volatility likely falls.

Difficult to quantify what the upside might reach, but the down side based on the last few years if volatility falls is potentially large.

Not a widows or orphans trade as short volatility now is still high risk imho, but I can withstand a complete loss & so long as svxy isn't withdrawn there seems a good possibility that in the by & by even with short term spikes that volatility falls imho.

Regards,

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Re: VIX

#117896

Postby hiriskpaul » February 13th, 2018, 3:54 pm

This is interesting, but could be fake news, etc.

https://www.cnbc.com/2018/02/13/whistle ... igate.html

For the moment I am staying clear of volatility futures and derived products such as SVXY. I will stick to options. That way I know precisely what volatility I am being quoted.

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Re: VIX

#118185

Postby langley59 » February 14th, 2018, 4:03 pm

February VIX futures have expired today, VIX Itself has fallen to just under 20 as I write and the backwardation between the front month futures (Mch) and the second month futures (Apr) is quite small.

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Re: VIX

#118370

Postby hiriskpaul » February 15th, 2018, 1:36 pm

hiriskpaul wrote:FWIW I took out a bet on Friday that we have seen the last vol spike and it is downhill from here (short Mar SPX puts at 5400). So far so good today. Last week I also bet against a collapse in oil prices (Short Apr WTI puts at 5400). That one is not going too well, but a bit better today.

I am surprised no one questioned this. My short S&P 500 puts have a strike of 2400, not 5400! Similarly, WTI strike should be 5650, not 5400. No idea why I had 5400 on my brain.

So far this volatility spike has followed a common pattern with a few days of significant volatility, followed by a more gradual decline. I hope it continues to follow that pattern.

I have been thinking about the suggestion of VIX futures manipulation and find it quite surprising. The posting of outrageously priced orders for SPX options are not uncommon and used to stimulate more sensible prices, or so I used to believe, so it seems unlikely to me that the CBOE would take account of unrealistic prices in calculating the VIX.

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Re: VIX

#118446

Postby DiamondEcho » February 15th, 2018, 7:14 pm

hiriskpaul wrote: I am surprised no one questioned this. My short S&P 500 puts have a strike of 2400, not 5400! Similarly, WTI strike should be 5650, not 5400.

I noticed it was incorrect, despite not closely following these instruments. I occasionally have random moments like this too and that's what I put it down to, no big deal - it happens :lol:


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