That's the same as asking what happens if Google goes to 10k. The probability of vix going to 150 is equal to a lottery ticket at this current point.
+239% YTD on COVID-19: Next Steps
- Thread starter Statistical Trader
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Actually, having followed posts on ET for several years, I've realized that if I state impressive returns in my title (which I'm fortunate to have) and justify them in my post, I'll get more views and replies. I genuinely want to know people's opinions, so the more views and replies, the more information I'm likely to get.
@FrankInLa I wasn't talking to you.
You've never heard of Interactive Brokers before?
LOL. Maybe.
If anyone is interested, though, here's how I played it. I have a recession model and a volatility model. I spent months building these models, years monitoring and using them, and I've built them carefully. I have an advanced degree in statistics.
My recession model is based on 100 years of data and correctly anticipated every US recession except one using leave-one-out cross validation (ie it's not "overfit"). It also gave no false signals (ie never said there would be a recession when there wasn't one.) It has been anticipating a US recession since the winter and in mid-February put the probability at 66% (ie 2/3 of the sub-models said "recession").
My volatility spike model isn't perfect, but it's pretty good. In late February, it said there's a high chance of increased volatility ahead.
So, putting those two things together, I thought IF my thesis is correct that we're heading into a crash, what is the best way to express this in the market right now in terms of reward/risk ratio? VIX call options were cheap at the time, especially OTM. So I bought VIX calls at strikes of 20, 25 and 30 with expiries running from March to September, with a heavier concentration in March and April. If there were any sort of downturn at all, I would profit on those strikes and I got lucky that the VIX spike was as strong as it was.
Now I think that there's a reasonable chance that we have more downside ahead. VIX options are no longer attractively priced in my opinion. I have some ideas where I think the best reward/risk ratio might be moving forward, but I'm interested in others' opinions too.
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@tsznecki :
My reply would have been similar to @FrankInLa, so I just let his comment stand.
If my assumptions are wrong, then my assumptions are wrong. I'm not worried about that. I'm not predicting VIX at 150. If I'm wrong on that, fine.
I'm anticipating the possibility of further downside over the next 1-6 months. I could be wrong on that; that's also fine. I see it as my job now, though, to look for the best reward/risk ratio at this moment on the thesis that this is what's going to happen. Once I find how I want to express this thesis, I choose what % of my portfolio to risk on the trade. Then I move on.
I'm a fairly private person. Look at the "location" field on my profile. (Even though it is true, it is certainly vague.)
Showing percents is enough to show that I was right on the trade. Showing dollar figures shows how much money I have; they are not the same thing of course.
I'm not rich and I'm not poor. I make a living and I'm happy with that.