Controlling Vega daily with minimal cost

[Atikon]

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.

What would be your recommendation? A synthetic VIX Future? I'm getting in and out on the same day, that's why I was kind of greedy as I know realize, wanted the IV Decay and Theta.

 

[Atikon]

I think the best Option for me is to go Long via CFDs, will cost me 20 Euros in Comission per Day and I can Match my Daytrades without buying X Ammount of Options because I can buy fractional VIX Futures.

 

[gaussian]

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.

Every time you hedge though you're giving up some edge. I think that is expected behavior for any hedge, not just this one.

 

[Atikon]

Every time you hedge though you're giving up some edge. I think that is expected behavior for any hedge, not just this one.

I have wide spreads, so I work with stop losses. Everytime the IV blows up, the Intervalls I choose are getting tigher because the Stop Loss gets triggered. I focus on Theta Decay. I'm ok with giving up some of the profits to become more predictable. Also it allows me to grab more Theta Decay on Days where news come out that will make the VIX go up.

 

[ffs1001]

@Atikon, so if I understand it correctly, you sell an IF or IC in the SPX in the morning and you close your position before the end of the day and you want to vega hedge your trade in case VIX rises during the day?

Surely, delta is more of a threat to your position than vega? If the SPX moves sharply up say, then any IF or IC you may have will be at risk, and meanwhile the VIX has probably fallen due to the rise.

Would love to see an example of the type of trade you actually do - it doesn't have to be a real trade, just a sample strikes/dates etc.

 

[destriero]

ffs, tell him to straddle a calendar, bc well, edge!

 

[Atikon]

@Atikon, so if I understand it correctly, you sell an IF or IC in the SPX in the morning and you close your position before the end of the day and you want to vega hedge your trade in case VIX rises during the day?

Surely, delta is more of a threat to your position than vega? If the SPX moves sharply up say, then any IF or IC you may have will be at risk, and meanwhile the VIX has probably fallen due to the rise.

Would love to see an example of the type of trade you actually do - it doesn't have to be a real trade, just a sample strikes/dates etc.

Direction is always a risk with IC, but my stop losses let me stay within a range, where I am profitable. When the IV blows up, stop losses will be triggered and my Confidence Interval/Probability/Profitability blows up with it. Example yesterday Unemployment Numbers came out, Option Prices doubled even thoug the SPX didn't budge. I want to be able to earn Theta Decay without having to worry about what time to Enter the Market

 

[piezoe]

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.

Ah huh, dats right.

 

[Overnight]

Sorry about the intrusion, but I think I found a visual analogy between stocks and futures, as compared to options...

Stocks/futures...

Options...

 

[taowave]

I dont understand why you are "daytrading" the Vix as a hedge while exposing yourself to overnight risk and gaps..Find it hard to believe you arent giving up any "edge" on slippage/bid offer spread..Are you really that concerned with intraday vol pops on a limited risk strategy??

Ild be far more concerned with gap openings and letting your delta/gamma getting away from you....

Am I missing something?






you are

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