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VIX

Honest reporting on shorter-term trading activity and ideas
threetees
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VIX

#34905

Postby threetees » February 27th, 2017, 5:33 pm

US Volatility index currently around 13 for March and 15 for April on IG.
EU Volatility index currently around 17 for March and 26.5 for April on IG.

I am greatly tempted to sell the EU April VIX. Is this due to the French election, other world leader fruitcakes, or something I am unaware of? I am not greatly knowledgeable on the intricacies of VIX.

ttt

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Re: VIX

#34941

Postby Lootman » February 27th, 2017, 8:51 pm

The actual volatility of the S&P 500 in recent months has been about 6. The VIX is about double that. So although many think that the VIX under-estimates potential volatility, it may very well be over-estimating it.

The problem with volatility is that it can stay low for very long periods and it costs you to bet on it going up. A low VIX implies that you should be buying options and going long premium. But that can bleed you dry for long periods and the odds are it will only finally pay off when you give up in disgust and despair.

threetees
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Re: VIX

#34997

Postby threetees » February 28th, 2017, 6:03 am

Quite agree with you Lootman.
Is it reasonable to suppose the April figure should drift down to where the March fifure is now over the coming month barring events?

ttt

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Re: VIX

#35080

Postby hiriskpaul » February 28th, 2017, 12:04 pm

threetees wrote:US Volatility index currently around 13 for March and 15 for April on IG.
EU Volatility index currently around 17 for March and 26.5 for April on IG.

I am greatly tempted to sell the EU April VIX. Is this due to the French election, other world leader fruitcakes, or something I am unaware of? I am not greatly knowledgeable on the intricacies of VIX.

ttt


I would suggest getting acquainted with the inticacies of the VIX (and VIX futures) before going long or short.

It is quite normal for the VSTOXX to be higher than the VIX by the way:



I have included the mode and skew to illustrate just how positive the skew is on implied volatility. Just the sort of thing to lead short sellers suffering from recency bias into a false sense of security ;)

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Re: VIX

#35128

Postby hiriskpaul » February 28th, 2017, 2:04 pm

p.s. You are right in that it does appear unusual. VIX futures displaying usual contango, but a significant bump in Apr VSTOXX, then fairly flat at about 22. Apr long VIX/short VSTOXX might be an interesting punt, with lower risk than short VSTOXX.

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Re: VIX

#35139

Postby hiriskpaul » February 28th, 2017, 2:35 pm

hiriskpaul wrote:p.s. You are right in that it does appear unusual. VIX futures displaying usual contango, but a significant bump in Apr VSTOXX, then fairly flat at about 22. Apr long VIX/short VSTOXX might be an interesting punt, with lower risk than short VSTOXX.


So interesting in fact I have taken the bet. 1.77 * long Apr VIX at 15.18 per 1 * short Apr VSTOXX at 26.63.

Will post how it goes.

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Re: VIX

#35206

Postby hiriskpaul » February 28th, 2017, 5:34 pm

hiriskpaul wrote:
hiriskpaul wrote:p.s. You are right in that it does appear unusual. VIX futures displaying usual contango, but a significant bump in Apr VSTOXX, then fairly flat at about 22. Apr long VIX/short VSTOXX might be an interesting punt, with lower risk than short VSTOXX.


So interesting in fact I have taken the bet. 1.77 * long Apr VIX at 15.18 per 1 * short Apr VSTOXX at 26.63.

Will post how it goes.


I just took advantage of a rise in Apr VIX to rebalance the position, closing out some of the VIX for a profit of 0.2 points. The ratio is now 1.3*VIX/VSTOXX. Based on historical data, I am more comfortable with this ratio, but it does carry more European risk.

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Re: VIX

#39384

Postby demully » March 17th, 2017, 11:00 pm

Hey,
Yes there is a "vol of vol" lump-and-bump in V2X around the French elections. If you look at eg the 10 or 25 delta riskies in EURUSD, it's much the same in FX. There's a nod and a wink in the plumbing to the risks; but it's only if you look in said plumbing that you see it. E.G. Naked insurance on the French CAC is no more expensive than insuring the Eurostoxx. Agreed on the basic premise.

Strictly speaking by putting the lack of the same in the UX/VIX curve up for grabs, you're really suggesting a relative misprincing of risk in vol curves that should be played by a cross-vol RV :-) Yes, I'm pulling your leg... but there's a serious point in respect of the April 26 being absolutely nothing in level terms for Europe in the conditional scenarios of a disruptive Neo-Nazi with an exit proposal (to call it a "strategy" would be give the same credit ex-ante to the racists and Brexiteers, or the Scots in 2014 and 20xx/whenever/ifever potentially) taking charge of the junior senior partner of the whole partnership.

The other way to think of this trade is to replace one's equity exposure to Eurostoxx with call options (where you don't lose the same egregious curve rolldown if the feared small-odds scenario comes to pass). Those same tiny vols mean that the insurance to the downside is tiny in cost terms (just in case). If the fair value of normal vol should have 2% and you get it at 1.5% tot the downside, the the risk-reward of the relief when she doesn't win and all those institutions who held back ex-ante for career risk but pile in ex-post to chase because they have to for career-plus-benchmark risk is equally good (if not stronger because of the inmates follies in VIX that are even worse in VSTOXX, IMO).

I'm long SX5E June 3450-3600 call spreads, myself. But yeah, it's the same trade :-)
DEEEM

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Re: VIX

#41885

Postby hiriskpaul » March 28th, 2017, 1:43 pm

I am roughly half way to expiry on my VIX/V2TX bet and so far the April V2TX future has stubbornly held up. It is down just 3 points to 23.63. I had expected a larger fall after the resounding defeat
Moderator Message:
edited to show the "rules". It is forbidden to write defamatory remarks, whether about site users or others. Any potentially defamatory posts will be removed without warning . Raptor.

in the NL election, but I guess the market is still concerned about the French election and perhaps volatility from Article 50 being invoked. The VIX APR future is down 1.65 points, so I have a small profit on my bet, but will hold on for now.

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Re: VIX

#44305

Postby hiriskpaul » April 7th, 2017, 11:06 am

I just closed out my bet. Apr EU volatility index closed at 23.48, for a profit of 3.15 points. US volatility index closed at 13.83, for a loss of 1.35 times 1.3 = 1.755 points. Net profit 1.395 points.

At the time of closing the spread between the VSTOXX Apr future and the spot had closed to only 3.58 points. With the US attacks on Syria and the French election looming, in my opinion the difference was no longer worth the risk of continuing to hold.

The original proposal to short APR VSTOXX would have worked really well, clearly better than my long EU/short US strategy.

Big thanks to threetees for pointing this out.

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Re: VIX

#81795

Postby langley59 » September 18th, 2017, 2:34 pm

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.

There are some other more minor factors at play in the pricing of SVXY but most significantly I believe this comes down to these two:
(1) the accumulation of realised P&L driven by the contango, ie. most of the time the price of the 2nd month futures (F2) is higher than the first month futures (F1) so each day SVXY buys back some F1 futures and shorts some F2 futures as it rolls forward;
(2) an unrealised P&L element being the revaluation of the short VIX futures held at the end of each day, related to the changing level of the VIX.

Therefore a long SVXY strategy should earn some realised P&L each day the futures are in contango and gain on revaluation when the VIX falls (and lose when it rises), this revaluation netting out over time assuming a somewhat normal starting VIX level. Over time therefore the accumulation of contango gains is what drives the positive return.

For a UK based investor SVXY can be held in USD as a US ETF or traded in GBP as a spreadbet.

Thoughts on this strategy welcomed. I have followed it for some time. However I make the points above as an observation and not as investment advice to others. SVXY can suffer from large and rapid drawdowns when vol spikes up and one has to have both the liquidity in one's account and the state of mind to hold on and increase exposure when this happens.

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Re: VIX

#81871

Postby hiriskpaul » September 18th, 2017, 6:56 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.

There are some other more minor factors at play in the pricing of SVXY but most significantly I believe this comes down to these two:
(1) the accumulation of realised P&L driven by the contango, ie. most of the time the price of the 2nd month futures (F2) is higher than the first month futures (F1) so each day SVXY buys back some F1 futures and shorts some F2 futures as it rolls forward;
(2) an unrealised P&L element being the revaluation of the short VIX futures held at the end of each day, related to the changing level of the VIX.

Therefore a long SVXY strategy should earn some realised P&L each day the futures are in contango and gain on revaluation when the VIX falls (and lose when it rises), this revaluation netting out over time assuming a somewhat normal starting VIX level. Over time therefore the accumulation of contango gains is what drives the positive return.

For a UK based investor SVXY can be held in USD as a US ETF or traded in GBP as a spreadbet.

Thoughts on this strategy welcomed. I have followed it for some time. However I make the points above as an observation and not as investment advice to others. SVXY can suffer from large and rapid drawdowns when vol spikes up and one has to have both the liquidity in one's account and the state of mind to hold on and increase exposure when this happens.

I looked at SVXY a few years ago, but decided against doing anything with it. The biggest headache was that it is not UK Reporting, which means profits will be subject to income tax. An alternative would be to systematically short VIX futures yourself, but that would likely run up capital gains tax bills each year and so reduce long term gains. Trading the futures directly can be an expensive option for small accounts as well. Shorting via spread bets is possible, but also expensive if you roll over each month as this would work out about 5% per year. Long SVXY via a spreadbet is likely the simplest, but again not cheap due to the quarterly rollover costs (about 1%/qtr at IG for the forwards) and implicit borrowing costs in the forwards, or the explicit borrowing costs in the DFB (about 2.75% annualised at present).

You should also consider that long SVXY is not the same thing as a systematic shorting of VIX futures. SVXY compounds up daily changes in short VIX futures, which typically would not be as good as shorting the future and rolling over once per month. As such, a slightly better strategy may be to short the long version of the VIX ETF (VIXY)*. The spreadbet costs would be similar, but the asymmetric compounding drag should work in your favour and you would not be paying the ETF administration fee (you would be shorting it!). However, you would still have to pay a daily funding fee (about 2.25% annualised at present) and the risk of shorting VIXY is that when a volatility spike occurs your exposure could temporarily go sky high, whereas a long position in SVXY can only go to zero.

*ps. I have checked and IG do allow the shorting of VIXY via a DFB.

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Re: VIX

#81889

Postby langley59 » September 18th, 2017, 8:39 pm

hiriskpaul wrote:I looked at SVXY a few years ago, but decided against doing anything with it. The biggest headache was that it is not UK Reporting, which means profits will be subject to income tax. An alternative would be to systematically short VIX futures yourself, but that would likely run up capital gains tax bills each year and so reduce long term gains. Trading the futures directly can be an expensive option for small accounts as well. Shorting via spread bets is possible, but also expensive if you roll over each month as this would work out about 5% per year. Long SVXY via a spreadbet is likely the simplest, but again not cheap due to the quarterly rollover costs (about 1%/qtr at IG for the forwards) and implicit borrowing costs in the forwards, or the explicit borrowing costs in the DFB (about 2.75% annualised at present).

You should also consider that long SVXY is not the same thing as a systematic shorting of VIX futures. SVXY compounds up daily changes in short VIX futures, which typically would not be as good as shorting the future and rolling over once per month. As such, a slightly better strategy may be to short the long version of the VIX ETF (VIXY)*. The spreadbet costs would be similar, but the asymmetric compounding drag should work in your favour and you would not be paying the ETF administration fee (you would be shorting it!). However, you would still have to pay a daily funding fee (about 2.25% annualised at present) and the risk of shorting VIXY is that when a volatility spike occurs your exposure could temporarily go sky high, whereas a long position in SVXY can only go to zero.

*ps. I have checked and IG do allow the shorting of VIXY via a DFB.


I tried to short VIXY rather than go long SVXY as my backtesting revealed that it performs better, however found that you cannot short via spreadbetting, although I was only looking at the quarterly contracts not DFB.

To date I have taken positions in SVXY in the longest dated quarter offered and rolled forward into the new longest dated quarter when the nearest quarter contract expires, to bank profits and to give myself the longest period available to recover without having to realise a loss on contract expiry should there be a large drawdown. I agree that the spread and funding costs are expensive but relative to the profit/loss potential acceptable in my opinion. I was considering buying the ETF directly rather than holding through spreadbets as this would avoid the need to roll forward into new contracts. The counter to this I thought being the FX exposure incurred in holding a USD denominated ETF, which could reduce (or increase) profits when converted back to GBP. Your comment about profits being subject to income tax is unwelcome news to me but I am glad you mentioned it as that will persuade me to stick with spreadbets.

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Re: VIX

#81931

Postby moorfield » September 19th, 2017, 12:32 am

langley59 wrote:I tried to short VIXY rather than go long SVXY as my backtesting revealed that it performs better, however found that you cannot short via spreadbetting, although I was only looking at the quarterly contracts not DFB.


VIX (S&P 500) is stupidly low right now - the only way is up. So the trade I'm currently looking from here at is a put ratio backspread to keep a small credit ticking over while waiting for the Big One along the way ...

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Re: VIX

#82021

Postby hiriskpaul » September 19th, 2017, 12:00 pm

moorfield wrote:
langley59 wrote:I tried to short VIXY rather than go long SVXY as my backtesting revealed that it performs better, however found that you cannot short via spreadbetting, although I was only looking at the quarterly contracts not DFB.


VIX (S&P 500) is stupidly low right now - the only way is up. So the trade I'm currently looking from here at is a put ratio backspread to keep a small credit ticking over while waiting for the Big One along the way ...


Agreed, the low VIX will not last. I am staying out of equity options until that changes. I have been doing a small amount in WTI options though. 4100 puts expired OTM last Friday and I have more short puts at 4100 expiring on 17/10. Any sensible person would close out, but so far I have closed half my position. Plenty of volatility in oil!

Long SVXY or short VIXY can still work though due to contango, but will show a reversal when the VIX picks up again. It may of course take a long time for the VIX to pick up, so I may have to wait a long time before I can make anything from equity options. Always the dilemma during periods of very low vol.

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Re: VIX

#82022

Postby moorfield » September 19th, 2017, 12:06 pm

... and this morning VIX is dipping below 10, although CBOE yet to open. I will be "buying" (spreadbetting) put options later this week I think.

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Re: VIX

#82024

Postby moorfield » September 19th, 2017, 12:10 pm

hiriskpaul wrote:Plenty of volatility in oil!


I've looked at Oil and FX markets too, but settled on just S&P. It's boring, but working for me - so far!

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Re: VIX

#82047

Postby langley59 » September 19th, 2017, 2:17 pm

hiriskpaul wrote:Long SVXY or short VIXY can still work though due to contango, but will show a reversal when the VIX picks up again.


Indeed. My strategy is to harvest contango gains steadily over time. When volatility spikes up that affords an opportunity to add to exposure at above average levels of the VIX. Historically it seems that VIX always mean reverts after a spike upwards, although this sometimes takes some time, as someone once said like a feather blown high in the air by a gust of wind which always eventually settles back down to earth.

Of course next time could be different and I will regret it.

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Re: VIX

#82275

Postby OxonianCambion » September 20th, 2017, 1:57 pm

I use IG to faff about with VIXY and SVXY.

I maintain a long position in SVXY and a smaller - typically 20 -30% - short position in VIXY.
The SVXY position is quarterly. (I see they've just got rid of the roll-over discount on the spread. :-/)
IG don't seem to let you open a quarterly short position in VIXY and I've been unable to open a DFB short position for periods of time.

One thing to be aware of when shorting, is that you need to pay a "stock borrowing fee" just as if you were shorting the things directly. They don't tell you the amount in advance and don't tell you what amount of the borrowing fee comes from what holding. It's also about twice as much as the daily short interest.

This seems awfully unfair to me as surely they just internally net it off against the suckers holding long positions, which makes up the majority of holdings?
https://www.ig.com/uk/ig-shares/proshar ... tf-VIXY-US

Also, I'd love to short UVXY (the 2x long version) as it gets slaughtered long-term by a combination of the roll and the leveraged-loss issue. (If the index falls 20% then goes up 25%, it is back to where it started, but the 2x version is at a total of -10%: 60% x 150%).
However, I've only been allowed to short it very occasionally. (It's normally marked as unborrowable but again, 98% of people are long so they must be able to net off! Surely spread betting should enable people to short stuff they can't borrow.)
https://www.ig.com/uk/ig-shares/proshar ... tf-UVXY-US

I also got nobbled when the only holding I did manage to get in UVXY reverse split, as it does periodically. IG rounded down my holding and didn't pay me the difference! They relented as a one-off "gesture of goodwill" when I complained, but that seemed unfair to me.
(I had a holding of -£0.24/pt which they turned into a -£0.06 holding after a 5:1 reverse split.)

Despite the above gripes, I have found it a fantastically profitable strategy especially when looking at the vix level and term structure here to decide when best to jump in: http://vixcentral.com/

Just be aware of then enormous fluctuations in value, especially when short. I always have enough money in my account to cover the entire holding (i.e. no margin) and accessible cash vastly more that the entire value.

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Re: VIX

#82350

Postby hiriskpaul » September 20th, 2017, 8:45 pm

OxonianCambion, it is interesting to know about the stock borrowing fee. I have never paid that, but I don't recall ever shorting securities, just indices, options and FX forwards, so probably the reason.

Completely agree with you about the shorting risk. As I mentioned earlier, the great thing about SVXY, or any other inverse ETF/ETN is that the price cannot go below zero, which helps with margin management.

Instead of going long SVXY and short VIXY, have you ever tried just shorting the futures via IG? I know that looks a little more expensive on paper than SVXY/VIXY, but I would have thought the overall result would be as good if not better than long SVXY or short VIXY, especially if you have to pay a borrowing fee to short VIXY, as you should do better than the daily compounded returns you get with the ETFs. There is still the issue of the more difficult margin management problem with shorting though.

I think you are wrong about IG getting rid of the roll-over discount by the way. They have on index futures, etc., but AFAIK not on the forwards they make on ETFs and shares, so you should still get the roll-over discount on SVXY.


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