Yes, that makes perfect sense. Thank you v much for taking the time.
Fully automated futures trading
- Thread starter globalarbtrader
- Start date
I was short 5 VX contracts the other day with a max forecast of -20, when I had my worst daily loss, when VX spiked. I am less diversified than GAT, trading only 8 markets, but my account is much smaller at $130K. My volatility is at 30%. Something tells me I have a mistake in my system somewhere, since I will be wiped out by a 30 point move in the VX. (I only trade once a day at the open). Or is this to be expected, and simply the price of admission to 30% volatility?
It's the price of admission to trading the VIX; a negative skew asset which means in Gaussian space it has non stationary vol, and then targeting 30% vol. If you think a 30 point move in the VIX is plausible, you really ought to reduce your allocation to the VIX.
GAT
On that day when the VIX spiked, which parameter changed the most in your system? The forecast (went from -20 to xxx) or the value volatility?
To be honest: having 5 VIX contracts in a 130 kUSD account where you trade 8 markets seems rather high to me.
I surfed the web a bit and it appears that the biggest daily spike in VX history is 64%. That would be a 37% hit to my account, assuming a max forecast. I could handle that, but maybe not much more. Or maybe I'm being naive. Maybe I should cut my VX exposure in half to be safe.
http://www.asxmarketwatch.com/2011/...rom-jesse-livermore-on-trading-and-investing/
Jesse Livermore Quote 8:
“I can’t sleep” answered the nervous one.
“Why not?” asked the friend.
“I am carrying so much cotton that I can’t sleep thinking about. It is wearing me out. What can I do?”
“Sell down to the sleeping point”, answered the friend.
GAT
Top Traders Round Table – Adam | Harding | Lueck #11
Top Traders is bringing you Top Traders Round Table, a series of conversations with industry leaders on the subject of Managed Futures. On this special episode, my guests are the founders of AHL: Michael Adam who later co-founded Aspect Capital, David Harding also known as founder and CEO of Winton Capital and Marty Lueck also one of the co-founders of Aspect Capital.
We sat down in the famous Abbey Road Studios in London to talk about AHL’s beginnings, the revolutionary discoveries that AHL made, how MAN Group became the owner of AHL, as well as all the great things that Michael, David and Marty went on to create.
Top Traders is bringing you Top Traders Round Table, a series of conversations with industry leaders on the subject of Managed Futures. On this special episode, my guests are the founders of AHL: Michael Adam who later co-founded Aspect Capital, David Harding also known as founder and CEO of Winton Capital and Marty Lueck also one of the co-founders of Aspect Capital.
We sat down in the famous Abbey Road Studios in London to talk about AHL’s beginnings, the revolutionary discoveries that AHL made, how MAN Group became the owner of AHL, as well as all the great things that Michael, David and Marty went on to create.
If I recall correctly, the forecast went from -20 to -12, dropping my position from -5 to -2. I think the position was so large since there hadn't been big spikes lately in the VIX, so the system was interpreting VIX as a low volatility instrument. I don't know if the VIX is workable in my system if these spikes are common. It seems like there's a spike, where I lose money, then my system decreases my allocation, but then the spike almost always reverses very quickly, so I win back some of my money, but on a much smaller position.
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I see. I would have expected that the value volatility would show the greatest change. But that depends on how sensitive your forecast calculation is, versus the value volatility calculation.
I am not using the VIX but the European V2TX. That one also spiked on the same day. The forecast changed somewhat in my system, but the largest influencer was the value volatility. Thus my position size got reduced.
I wonder if it would make sense for us to delay ingestion of prices by a few days on the volatility indices since they have these large spikes that quickly reverse.
For example, if I were short 5 contracts, then the Vix spikes by 10% on day n, my system does not react since the latest price it has is from three days ago. Then the Vix completely reverses its spike on day n+1 or n+2 (this seems to happen nearly every time it spikes). I would gain back whatever I lost on day n, since I am still short 5 contracts, since my system hasn't reacted to the spike. Then, on day n+3, my system reacts to the spike by reducing exposure, but at that point we are back to normal volatility. Is this type of system-tinkering a no-no?
For example, if I were short 5 contracts, then the Vix spikes by 10% on day n, my system does not react since the latest price it has is from three days ago. Then the Vix completely reverses its spike on day n+1 or n+2 (this seems to happen nearly every time it spikes). I would gain back whatever I lost on day n, since I am still short 5 contracts, since my system hasn't reacted to the spike. Then, on day n+3, my system reacts to the spike by reducing exposure, but at that point we are back to normal volatility. Is this type of system-tinkering a no-no?