Controlling Vega daily with minimal cost

Atikon

Atikon

Hi Guys,

I've been trading Income Strategies on SPX (Iron Fly/Iron Condor) daily while hedging the Vega risk via VIX Calls. I usually sell before the bell. I have a couple of questions:

- When is the best Time to buy and Sell Vix Calls through the day. You guys who collect data may have a database and looked into it before/did an analysis already. So far I haven't lost money buying around 10am and selling during the last hour of the day. Unfort. I don't have the data to backtest the it's best to buy and sell at.

- On Mondays and Tuesdays I usually go for the VIX Weekly and on the Rest of the Week I go with the 6 Month VIX Call. I'm considering buying the 6 Month daily, as Theta isn't an Issue with the 6 Month Contract. Been a bit worried about Gamma since it's quite low on the 6 Month.

Maybe you guys have suggestions, what could be improved and how to protect my P/L while still handling Theta.

Best

Atikon
 
Last edited:
Atikon said:
Hi Guys,

I've been trading Income Strategies on SPX (Iron Fly/Iron Condor) daily while hedging the Vega risk via VIX Calls. I usually sell before the bell. I have a couple of questions:

- When is the best Time to buy and Sell Vix Calls through the day. You guys who collect data may have a database and looked into it before/did an analysis already. So far I haven't lost money buying around 10am and selling during the last hour of the day. Unfort. I don't have the data to backtest the it's best to buy and sell at.

- On Mondays and Tuesdays I usually go for the VIX Weekly and on the Rest of the Week I go with the 6 Month VIX Call. I'm considering buying the 6 Month daily, as Theta isn't an Issue with the 6 Month Contract. Been a bit worried about Gamma since it's quite low on the 6 Month.

Maybe you guys have suggestions, what could be improved and how to protect my P/L while still handling Theta.

Best

Atikon
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I don't know the answer to your question, but I do know this. You're going to make your broker very, very happy.
 
Curious as to your average spreads and commissions on your multi-leg positions, as a percentage of capital invested.

Have you calculated this realistically? If not, you might want to first pour a stiff drink before running the actual numbers.
 
lindq said:
Curious as to your average spreads and commissions on your multi-leg positions, as a percentage of capital invested.

Have you calculated this realistically? If not, you might want to first pour a stiff drink before running the actual numbers.
More...


Thanks gramps. I can show you tickers where the vertical is tighter than the share NBBO. Comms are zero + regulatory. Can we stop with this 90s era bullshit? Fine, you don't have the brain pan to trade anything but D1. Move along.
 
I can show anyone here in PM my IRS returns showing $8MM in gains < 3 years paying (low) retail comms and nothing under two legs. RegT, no PM. Predominately four strike positions (synthetic (combo) flies).

All this shows me is that lindq and piezoe don't trade anything but funds and odd lots.
 
Atikon said:
Hi Guys,

I've been trading Income Strategies on SPX (Iron Fly/Iron Condor) daily while hedging the Vega risk via VIX Calls. I usually sell before the bell. I have a couple of questions:

- When is the best Time to buy and Sell Vix Calls through the day. You guys who collect data may have a database and looked into it before/did an analysis already. So far I haven't lost money buying around 10am and selling during the last hour of the day. Unfort. I don't have the data to backtest the it's best to buy and sell at.

- On Mondays and Tuesdays I usually go for the VIX Weekly and on the Rest of the Week I go with the 6 Month VIX Call. I'm considering buying the 6 Month daily, as Theta isn't an Issue with the 6 Month Contract. Been a bit worried about Gamma since it's quite low on the 6 Month.

Maybe you guys have suggestions, what could be improved and how to protect my P/L while still handling Theta.

Best

Atikon
More...


Match your SPX and VIX tenors. You don't want to swap gamma for vega. I am not going to get into var/vol of vol as it's getting into the weeds. You can't reduce your vol-line by replicating in VIX calls. You're swapping vol for nominal premium. Sure, it's "cheaper" in dollar-terms, but you're paying a higher vol to truly replicate.
 
Atikon said:
When is the best Time to buy and Sell Vix Calls through the day. You guys who collect data may have a database and looked into it before/did an analysis already. So far I haven't lost money buying around 10am and selling during the last hour of the day. Unfort. I don't have the data to backtest the it's best to buy and sell at.
More...

If you're hedging SPX with VIX to control vega wouldn't you want to be comparing the VIX level to whatever your total vega is and hedge based on that rather than time of day? I'm not sure why you'd consider time of day when hedging vega but I also don't do this myself (it's a good idea). I would think you'd evaluate your portfolio exposure once or twice a day and buy/sell VIX (outrights rather than options I would guess) to hedge it.

Realistically you'd probably want to buy/sell the underlying to hedge vega off but VIX is probably close enough.
 
gaussian said:
If you're hedging SPX with VIX to control vega wouldn't you want to be comparing the VIX level to whatever your total vega is and hedge based on that rather than time of day? I'm not sure why you'd consider time of day when hedging vega but I also don't do this myself (it's a good idea). I would think you'd evaluate your portfolio exposure once or twice a day and buy/sell VIX (outrights rather than options I would guess) to hedge it.
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VIX Calls is one Option I could also Buy far OTM Puts to Delta Hedge the Vega Risk with Delta, but this would mean a lot more in Comission, which is why I use 0,20 Delta Calls on VIX (long term). I don't hold the SPX Positions overnight. Timing is somewhat important for the VIX Calls, as you can see the IV go down after the market open and up at the end of the day, when ppl start to sell off. Buying OTM Puts would mean this Strategy would yield 30% less profit at the end of the year.
 
You have dG (speed) with the OTM stuff, but you'll still have to trade singles as hedges as the verticals are going to require you to trade more size (say 10-lots per SPX). It's simply not going to track that well. You're risking a lot of gamma in SPX that may not print in VIX.
 
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