My account value reaches $600,000 for the first time; launching incubator hedge fund

[lazar206]

Quote from atticus:

Would you mind responding to this? I actually trade the product and an a bit confused what you think you're seeing.

You're shorting VXX for 300bps over cash? I'd like to know, in general-terms, how you're hedging your VXX short. If you're simply shorting VXX in this "80% dividend shares/FI portfolio" then you're nuts.

I have some hedge of my short VXX positions thru owning VXZ, however that’s only a small hedge. I am building my VXX positions in a way it should be able to survive a 200% rise in VXX.(double the increase it had last year May).
Below is a quote from a recent article of WSJ regarding VXX

“The oldest and best-known VIX exchange-traded note, the iPath S&P 500 VIX Short-Term Futures ETN, or VXX, had a four-way reverse split in November. That's another caution against holding the vehicle over a prolonged time frame, according to strategists.
"In all of these products, you can't just sit there and ride these for long periods of time," Warren said. "It's like flushing your money down the toilet."

 

[atticus]

Quote from lazar206:

I have some hedge of my short VXX positions thru owning VXZ, however that’s only a small hedge. I am building my VXX positions in a way it should be able to survive a 200% rise in VXX.(double the increase it had last year May).
Below is a quote from a recent article of WSJ regarding VXX

“The oldest and best-known VIX exchange-traded note, the iPath S&P 500 VIX Short-Term Futures ETN, or VXX, had a four-way reverse split in November. That's another caution against holding the vehicle over a prolonged time frame, according to strategists.
"In all of these products, you can't just sit there and ride these for long periods of time," Warren said. "It's like flushing your money down the toilet."

Respectfully, you have no fucking clue what you are doing.

 

[kayakfly]

This thread is a prime example of why the era of hedge funds is over. No wonder the regulators have clamped down, every ass clown with 2 cents is now a hedge fund. Well, it was great while it lasted.... On to the next fad

 

[rtiger29]

Hey, let the man at least post his statement at the end of the month before everyone says he has no clue what he is doing. Didn't know there was only one way of making money in the markets. Sometimes, one has to be creative. Let see what he's working with before judgement.

 

[atticus]

Quote from rtiger29:

Hey, let the man at least post his statement at the end of the month before everyone says he has no clue what he is doing. Didn't know there was only one way of making money in the markets. Sometimes, one has to be creative. Let see what he's working with before judgement.

He's long shares and selling vol futures. As an analogy, would you consider loading up on stocks and then leveraging into short puts as a viable buy and hold strategy?

I was arguing against his contango comment, and he replies by quoting the WSJ.

Mea culpa. If we head to 1500 this year he'll make a killing.

 

[heech]

Look, if we knew his strategy was a guaranteed money loser or negative alpha, then you could guarantee a win by shorting his positions. And of course, it's not that simple... So layoff the guys positions.

I think (and for his sake hope) he may do very well for any number of years.... Maybe even decades. It would not be at all outside the realm of possibility. My only comment has been he remains highly correlated to the broader index, that his fund may be more beta than alpha, and I don't believe there will be much outside investor interest in a fund like that.

 

[kayakfly]

Quote from heech:

Look, if we knew his strategy was a guaranteed money loser or negative alpha, then you could guarantee a win by shorting his positions. So layoff the guys positions.

Wrong.

 

[dwpeters]

Quote from heech:

... So layoff the guys positions.

He is the one that came here asking for advice and comments. I think it's been said enough times that he could have more downside protection. But then I think it was questioned how he earned 60% a year, and his answers just don't add up.

Now you ask how I earned 60% a year. ... in 2010 it was taking advantage of the time decay of triple leveraged ETF thru shorting them

This is something I looked at so I happen to be set up to backtest this. Shorting a basket of 3X ETF's returned 5 to 15% in 2010, not 60%. Now certainly it would have been possible to trade these ETF's more profitably than in my tests, but that would be trading them. I measured taking advantage of what I think would more accurately be described as volatility decay (not time, these aren't options) and there wasn't enough volatility in 2010 to produce anywhere close to 60% returns from the decay.

 

[atticus]

Quote from dwpeters:

He is the one that came here asking for advice and comments. I think it's been said enough times that he could have more downside protection. But then I think it was questioned how he earned 60% a year, and his answers just don't add up.



This is something I looked at so I happen to be set up to backtest this. Shorting a basket of 3X ETF's returned 5 to 15% in 2010, not 60%. Now certainly it would have been possible to trade these ETF's more profitably than in my tests, but that would be trading them. I measured taking advantage of what I think would more accurately be described as volatility decay (not time, these aren't options) and there wasn't enough volatility in 2010 to produce anywhere close to 60% returns from the decay.

There is a convenience premium related to the Vxx-series and the roll, but there is no way the OP can take more than a few hundred bps hit in VIX and not lose money "long the switch" (short front, long back, ratio). To state that he can stay above water on a 3500-4000 bps rally in cash VIX is either flat-out BS or ignorance. You can get close to the var-swap in pricing the spread from cash to futures or use the VT mid-point, and there is questionable edge in selling the vol-index here, and even less in selling variance.

I take issue with going long 80% in shares paying 3% dividends and then leveraging into short vol with the rest. He's welcome to blow-up, but he will have a very hard time attracting opm with this strategy. I think his concern should be first and foremost avoidance of going debit.

VIX in the teens and you're continuing to short the vol-index? I have been short deltas in vol, but to short the index here is cuckoo when you're already fully committed to equities.

 

[lazar206]

Quote from atticus:

Respectfully, you have no fucking clue what you are doing.

Atticus, thanks for your nice words…. I think I will just stay with what I said earlier
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I think that rather then arguing about those strategies, I will let time tell how these strategies work out over the long run. As discussed I hope to post my results in the end of each calendar month so you will be able to analyze it how it is performing, and post your comments.
Thanks all of you for your interest and comments.