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CBOE Variance Futures
- Thread starter sle
- Start date
Well, this is actually a hedge for short volatility elsewhere.Quote from gkishot:
What is your bet? Volatility goes up?
But yes, theoretically speaking, going long variance futures means you're long volatility. That doesn't necessarily mean implied volatility going up (like it does with the VIX)... it could just mean you believe realized volatility from now until expiration will be higher than the 14.75 I just bought at.
Quote from heech:
Well, this is actually a hedge for short volatility elsewhere.
But yes, theoretically speaking, going long variance futures means you're long volatility. That doesn't necessarily mean implied volatility going up (like it does with the VIX)... it could just mean you believe realized volatility from now until expiration will be higher than the 14.75 I just bought at.
How much of your short volatility position do you hedge percentage wise? Would your strategy be profitable if you are hedged 100% of your short volatility?
These are all very good questions. I would like to think so, but I don't have enough historical data to answer that with any accuracy. So, ask me again in 3 years.Quote from gkishot:
How much of your short volatility position do you hedge percentage wise? Would your strategy be profitable if you are hedged 100% of your short volatility?
Sorry, was tied up and could not follow this thread.
Lets say you bot 20k vega worth of conracts at 19.5, so the number of units is 512.8205 (or about that, vega/(2*strike)). If you realize 0.195^2/252=0.0001508929 the influence of that day on your final P&L is zero. If the change for the day is twice the expected variance, your that one day will reflect in your P&L as 10000*512.8205*((2*0.01508)^2 - 0.01508^2) = 3498.56.
Edit: The units here assume non-seasoned contract, so in case of futures you would have to multiply by ratio of total days to days left
Not going through your calculation, you can think as follows - the influence of the daily move is simply 1 day variance (log return squared) is equal to the 10,000 * units * (realized^2 - strike^2) / days.Quote from heech:
So a 2x sigma day translates to gains of roughly $7k (if long). A 4 sigma one-day realized move is paper gains of $34k. A half sigma day and you lose roughly $1800.
Lets say you bot 20k vega worth of conracts at 19.5, so the number of units is 512.8205 (or about that, vega/(2*strike)). If you realize 0.195^2/252=0.0001508929 the influence of that day on your final P&L is zero. If the change for the day is twice the expected variance, your that one day will reflect in your P&L as 10000*512.8205*((2*0.01508)^2 - 0.01508^2) = 3498.56.
Edit: The units here assume non-seasoned contract, so in case of futures you would have to multiply by ratio of total days to days left
You could do that, but of course, don't forget that vix futures will be an imperfect hedge because of the convexity and the calendar effect.Quote from heech:
Question: if I wanted just realized and no implied exposure, I guess I should hedge with vix futures? Adjust the number of Vix dynamically as the days roll off the contract?
They made the thousand multiplier implicit.Quote from heech:
So.. this thread kind of faded? New year, more interest I hope.
But I'm confused. A couple of weeks ago, I saw the bid/offer on this instrument quoted with size showing something like 25000/25000... which I understood to be the vega notional number.
Now today, I see it quoted with size of 1-5. What happened? sle?
Quote from heech:
I primarily use Rithmic's trading front-end + CQG occasionally for manual trading. (Most of my trades are automated, but obviously not for VA.)
I execute at Vision currently. But really, any FCM that self-clears the CFE should be able to handle this contract.
Will your prime broker quote you variance and then cross on the exchange. I don't know if you can even cross but I bet that's the only way you can trade it.