Search results

Since these pairs have an inverse leverage relationship you would buy/buy or sell/sell, not buy/sell etc. The goal is to have zero exposure to the ETF index (in this case the SP500). How to execute this trade is sort of a complicated question, but the short answer is that it requires HFT...

Yes you definitely can. It is commonly called ETF arbitrage and very competitive and requires high frequency trading infrastructure.

I believe most exchanges support routable and non-routable orders. In the case that a non-routable order being filled violates Reg. NMS, the order is rejected opposed to being routed to another exchange.

Most VIX products rebalance daily at the VIX futures settlement time. You would need to adjust the quantity to maintain the 0 exposure condition. Hard to determine the cost of this relative to options. As far as the quality of hedge, it is necessarily the closest hedge one can have for a short...

Instead of dealing with options and all the various sources of piece movement associated to them, you can simply buy and long leverage VIX ETF of sell any short leverage VIX ETF. To compute your exposure you have: (number of shares) x (uvxy leverage 1.5) x (uvxy price) Where number of shares...

Let's assume the quotes are from market makers. Most market makers have roughly the same process to build quotes for an option: 1. Look at the future/equity order book for the option underlying. 2. Calculate the option price with spot set to both the bid and ask price from step 1...

If youre making UVXY options then you're probably hedging delta, so you wouldnt really need to model where the underlying will be in a year or two.

- The "decay" which is cause by the daily replication might need to be accounted for in the forward price. - It also means one can hedge into any product that tracks IDX. But may need to be rebalanced on a daily basis as is UVXY. - The volatility if UVXY can be written as a function of IDX

The NAV of UVXY (1.5 levered) at time t is roughly : NAV(t) = NAV(t-1) * ( 1 + 1.5 * IDX(t)) Where IDX(t) is the return from t-1 to t of the underlying index (the VIX index). I think the drift you're referring to is what happens as IDX(t) has volatile returns. One can show that NAV(t) has...

See how you feel after backtesting a strategy on a day's worth of raw NASDAQ feed. OP, I use pandas extensively for backtesting and it certianly helps circumvent the shortcomings of Python. The process you outlined above is a sinple and effective workflow.

UNG at most times of the month is an exact hedge. Look at the roll schedule to find the appropriate weights. Can also use NG futures equivalently.

DGAZ is inverse levered to the same index as UGAZ. Just sell a notionally equivalent amount of DGAZ.

Robert makes several good points. I'll add that since VXXB is an ETN, it tracks the rolling futures index exactly. Replication by futures may/will have a market cost.

To answer the question of how to get ratios that leave you flat in one or more of the principal components, imagine the following. Let A be a matrix of dimension 3x3 composed of 3 columns vectors each representing the factor exposure to component 1,2,3 respectively. Consider A^T where T denotes...

Most early redemption procedures state that the note will be redeemed at a given NAV (see prospectus for how the NAV will be computed). So a short position will be effectively covered at that NAV price via a cash redemption. A good example of this process was the XIV early liquidation in February.

To add some more info - you may already by aware of these facts: - ETNs have a formula which dictates their NAV and do not actually hold any assets - The issuers of ETFs publish daily holdings files. You may need to be an affiliated party to access this data. - To understand roughly what a...

Institutional traders have: - better capitalization - better technology and market access - ability to execute on razor thin margins - ability to identify “edge” from randomness (harder to say how accurate this is as we move from arb into more fundamental/quant based trades)

If you take the strip of SPX options being used in the VIX index calculation, you can derive a real time value for VIX. The futures are obviously based around this value, with certain calendarized risk being reflected in their prices. TVIX is an ETN and therefore it has a predetermined formula...

Probably a bit late to this thread, but XIV is not hence it does not hold futures. Credit Suise had a fairly complicated arrangement in which affiliated parties essentially had to hold a short VIX swap in order to create shares of the note. I think this is what ultimately did them in.

It's probably not an easy ETN to create. At this deviation from NAV you'd expect to start seeing the share outstanding increase until the deviation is eliminated. Also, there appears to be a general demand for short vol immediately after VIX rallying.