Contango/Backwardation is really persistent. Looking at the auto correlation between M1/M2, if today is in contango/backwardation tomorrow will likely be the same.
My VIX Futures Journal
- Thread starter TheBigShort
- Start date
Given the current term Structure it is obvious I want to be short vol. On the front month. Where I am looking to improve is, can I buy some "cheaper" risk premium somewhere else? I'm thinking I could buy some Oct with a root time hedge ratio but I doubt that will provide me security if we get a large spike!
From a seasonality perspective buying Oct would be the best bet.
From a seasonality perspective buying Oct would be the best bet.
we are not working from the same book..but that is ok..we might both learn something 
I would be in no hurry to short a futures contract at the moment..if anything I would look to sell a spread in anticipation of SPX rising to test the 2918 high..maybe I am reading it wrong..but p/c ratio tells me big boys are starting to hedge.. barring some "bad news" I would bet the 2918 is going to be tested.. interesting to see where options volume goes in next few weeks..of course anything can happen..but..no risk..no reward..getting the low risk entry is of course the hard bit!
I would be in no hurry to short a futures contract at the moment..if anything I would look to sell a spread in anticipation of SPX rising to test the 2918 high..maybe I am reading it wrong..but p/c ratio tells me big boys are starting to hedge.. barring some "bad news" I would bet the 2918 is going to be tested.. interesting to see where options volume goes in next few weeks..of course anything can happen..but..no risk..no reward..getting the low risk entry is of course the hard bit!
You might be over simplifying this to simply say short the front month vols when front month vols spike. Go back and see how many times contango occurs and front month goes from slight contango to major contango. Can you out last the move against you. This cannot be done with outright straight shorting vols. Shorting vols unhedged is how you get blown out.
In other words, when you say someting is obvious, it really isn't and you are missing something...
Market is near all time highs and VIX and front month are slightly elevated from norms when we reach such levels. You are looking to short the front month of the curve expecting that curve to hold for 3 more weeks.
Now based on your other posts it seems you are trying to tick phuck the fornt month future.
In that case you are basically making the same directional bet you would if you traded ES futures. Therefore you are not adding anything to your approach using VX futures despite focus on the curve. By simply shorting VX frot month outright you are simply saying ES will keep going higher and front month will converge to VIX.
VG point..so what is the main diff trading Vix to ES futures..apart from the obvious..but why construct a volatility trade to mimick ES futures direction..as you say..just trade ES outright..of course vol can explode with big drop in SPX..would you agree that timing is of the utmost importance..and control..meaning being in the right place at the right time
the few trades I have done with Vix futures spreads has shown me that it is not easy to make money with the spreads.. especially if you don't take your profits when they are there..my thinking is that volatility trading is much riskier than trading the ES outright..but getting to grips with Vix and SPX options and futures data can help in following the big money..which is of course where the market will mostly head towards.. interesting stuff!
the few trades I have done with Vix futures spreads has shown me that it is not easy to make money with the spreads.. especially if you don't take your profits when they are there..my thinking is that volatility trading is much riskier than trading the ES outright..but getting to grips with Vix and SPX options and futures data can help in following the big money..which is of course where the market will mostly head towards.. interesting stuff!
@TheBigShort is one man analysis machine. You won't be here for long, before some firm with NDA will hire you.
One thing gives me pause is how much net speculator short position in VX futures. It is even more compared to last summer lull. Only depth of financial recession had this much short position.
In Skew chart, how are you measuring Skew?
Agree with @El OchoCinco, scalping front month is basically directional bet on ES. If you are closing the trades less than a week, then VXST is the better index to look at.
Did you look at other parts of the curve and analyze richness/cheapness? Probably much better opportunity there.
One thing gives me pause is how much net speculator short position in VX futures. It is even more compared to last summer lull. Only depth of financial recession had this much short position.
In Skew chart, how are you measuring Skew?
Agree with @El OchoCinco, scalping front month is basically directional bet on ES. If you are closing the trades less than a week, then VXST is the better index to look at.
Did you look at other parts of the curve and analyze richness/cheapness? Probably much better opportunity there.
I've done some thinking about VIX before.. it's clear that premium can be extracted here, but the optimal way to do so has everything to do with risk control imo. Front month has steeper contango, but it can also spike way harder.. especially when it gets closer and closer to convergence with spot.
And since term structure is constantly moving through time we can't just wait out a rise in VIX. It always comes back down but when front month comes off the board once or twice and we re-short the next month that locks in extra losses. Depending on risk control it might be better to short further back and size bigger.
The best hedges for short vol are long vol closer to spot, followed by short SPX deltas. Options are going to bleed PnL too much when things are going smoothly imo. But unless we actually have some advantage with our hedge it's probably better not to bother and just size smaller. Developing a separate strategy or overlay focusing on long vol or short SPX deltas that actually has some rhyme or reason.. which could be put on in tandem with shorting vol was where I got stuck last time.
Interested to see where this leads though. For a while I've wanted to settle on a good way to systemically isolate and collect vol risk premium and peel away some of the correlation with long equities.. that would be great to run a basic short vol strategy alongside long stocks & bonds in the portfolio. But haven't gotten comfortable with anything yet despite turning it over in my mind.
And since term structure is constantly moving through time we can't just wait out a rise in VIX. It always comes back down but when front month comes off the board once or twice and we re-short the next month that locks in extra losses. Depending on risk control it might be better to short further back and size bigger.
The best hedges for short vol are long vol closer to spot, followed by short SPX deltas. Options are going to bleed PnL too much when things are going smoothly imo. But unless we actually have some advantage with our hedge it's probably better not to bother and just size smaller. Developing a separate strategy or overlay focusing on long vol or short SPX deltas that actually has some rhyme or reason.. which could be put on in tandem with shorting vol was where I got stuck last time.
Interested to see where this leads though. For a while I've wanted to settle on a good way to systemically isolate and collect vol risk premium and peel away some of the correlation with long equities.. that would be great to run a basic short vol strategy alongside long stocks & bonds in the portfolio. But haven't gotten comfortable with anything yet despite turning it over in my mind.
Yes, and in my experience, betting on one instrument or the other (VIX and its friends, or ES), depends on the time frame. Anything more than very short term in a VIX structured trade can get you killed. Longer term, ES is the safer bet when your system sets up a VIX signal.
One can quibble about the minute details of ES and VIX, but day in, day out, they are pretty efficient in mirroring each other. Again, depends on the time frame and your tolerance for risk.