What I mean is...those were quiet times when the VIX shot through the roof. So for some reason you think NOW is a good time to short the VIX? These times are way crazier than back then! VIX back to 9-12 level just does not seem possible. And didn't it shoot up like 5% yesterday?
How is shorting VIX right now not free money?
- Thread starter seakraken
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What I mean is...those were quiet times when the VIX shot through the roof. So for some reason you think NOW is a good time to short the VIX? These times are way crazier than back then! VIX back to 9-12 level just does not seem possible. And didn't it shoot up like 5% yesterday?
https://www.elitetrader.com/et/threads/shorting-the-vix.343053/
Here is another thread when the vix was 40ish in April
Here is another thread when the vix was 40ish in April
What’s SPXY? Do you mean SVXY?
Not exactly possible mathematically. When VIX goes up by 40% in a day (say from $20 to $28) then the 2x leveraged inverse product loses 80% (say from $100 to $20). Later when VIX comes back down from $28 to $20 again, that's 28%, so then the 2x leveraged inverse product would gain back 2x that, which is 56% - you're ending up with $31.20 from the original $100.
There is just no way you'll ever recover from such swings. That's why XIV folded and that's why those products are designed to perpetually lose value, except for strong upward trends that have to last for years without shakedowns.
I mean have you heard that when you lose 50% of your money then you need to make 100% to get back up where you were? Now imagine losing 80% - 90% and trying to get back 400%+. If this was that easy then everyone would just wait for SVXY to drop and then make lots of money.
Now SVXY has a smaller leverage, but the math is the same. You can't lose and gain the same % and end up where you were, especially when leveraged.
Not exactly possible mathematically. When VIX goes up by 40% in a day (say from $20 to $28) then the 2x leveraged inverse product loses 80% (say from $100 to $20). Later when VIX comes back down from $28 to $20 again, that's 28%, so then the 2x leveraged inverse product would gain back 2x that, which is 56% - you're ending up with $31.20 from the original $100.
There is just no way you'll ever recover from such swings. That's why XIV folded and that's why those products are designed to perpetually lose value, except for strong upward trends that have to last for years without shakedowns.
I mean have you heard that when you lose 50% of your money then you need to make 100% to get back up where you were? Now imagine losing 80% - 90% and trying to get back 400%+. If this was that easy then everyone would just wait for SVXY to drop and then make lots of money.
Now SVXY has a smaller leverage, but the math is the same. You can't lose and gain the same % and end up where you were, especially when leveraged.
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What I got from perusing this thread is that because you can't really buy and hold the VIX at 'spot' and your position will decay with the passage of time which will cut into your bottom line and probably make this trade unprofitable as you wait things to stabilize.
Right but had XIV not been leveraged like that they would have made quite a bit of their losses back in the next few months as VIX fell back. Hence, I was hoping to avoid leverage at all but it seems there is no such ETF/product out there.
Were it not for 'time decay' and having to incorporate for the speed of the market, even falling from the current level of 40% to 20% would be very profitable.
It is, but you have to be able to survive any potential drawdowns and margin calls between now and when the VIX is lower.
It's the same reason you can't just take on a ton of leverage and buy S&P 500 index ETFs because you "know" it will be higher 10 years in the future. Even if you are absolutely correct, there is a risk you won't survive drawdowns.
Concerning the VIX, I think it is safe to say that the VIX will eventually go back to 20 one day. UVXY, TVIX, VXX, and other long volatility ETFs will almost certainly see new all time lows one day. The issue is whether these underlyings will double, triple, quadruple, or more in price before you end up being right.
It's the same reason you can't just take on a ton of leverage and buy S&P 500 index ETFs because you "know" it will be higher 10 years in the future. Even if you are absolutely correct, there is a risk you won't survive drawdowns.
Concerning the VIX, I think it is safe to say that the VIX will eventually go back to 20 one day. UVXY, TVIX, VXX, and other long volatility ETFs will almost certainly see new all time lows one day. The issue is whether these underlyings will double, triple, quadruple, or more in price before you end up being right.
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SVXY moves asymmetrically. VIX touched just above 40 yesterday. At that point, SVXY was 29.29. The last time VIX was 40 was April 23rd. At that point, SVXY was 30.89. So even though VIX traded lower than 40 during all that time...about a month and a half, SVXY is still lower today than back then. Those one day big VIX spikes kill it.
If you look at VIX futures during high market volatility, you'll see that the longer expirations always price volatility returning to "normal".
So what you mean by the last part is that, VIX futures are so expensive far out (I.e. they are pricing in the return to normal) that time decay (loss of extrinsic value purchased) will mean you can’t really profit unless it goes to normal even faster/lower than the market predicted?
If you wrote "How is shorting VIX using VXX OR UVXY not free money?" then I might've even clapped. But you've posted an obscure way of "not making money" using SVXY.
Though another question is whether "right now" is a good time. VIX may be going back up soon.
Buy JETS then: https://finance.yahoo.com/quote/JETS/
If you're betting on volatility calming down, you're betting on the economy recovering as a whole, which means airline companies too. So JETS used to be about $30 a share and now it's half of that... you could make even 100% on your bet, instead of 40%. And at least with stocks, if your bet doesn't hold, you can just let your money float there until they rebound. Now some may not but airline companies? If economy recovers, they will recover too. Only question is when that will happen
