Please comment on this simple volatility strategy

L

londonkid

$100k starting capital. Wait till VIX goes back down to 12 and invest 100% into long Vix futures. Do not have a stop and leave the position running. Take profits when VIX hits 16. rinse and repeat.

Suppose the investor/trader is willing to suffer unlimited drawdown and the $100k is 10% of their liquid net worth.

Can anyone point out the risks/downside to this?

Thanks

the kid
 
What if VIX stays between 12 and 15 for 3 months straight? Are you planning to just roll into the next month until the index hits 16? Have you considered roll down costs?
 
londonkid said:
$100k starting capital. Wait till VIX goes back down to 12 and invest 100% into long Vix futures. Do not have a stop and leave the position running. Take profits when VIX hits 16. rinse and repeat.

Suppose the investor/trader is willing to suffer unlimited drawdown and the $100k is 10% of their liquid net worth.

Can anyone point out the risks/downside to this?

the kid
More...

As you say the max risk is capped.

Practically, the trick is timing (as is the case with all long vol). If you don't get a move for 6mths and you lose 50% of the premium, then even if VIX doubles, you're just back to your initial capital.

...the more time passes between inception and when the move happens the bigger/quicker the move needs to be to make up for that.
 
londonkid said:
$100k starting capital. Wait till VIX goes back down to 12 and invest 100% into long Vix futures. Do not have a stop and leave the position running. Take profits when VIX hits 16. rinse and repeat.

Suppose the investor/trader is willing to suffer unlimited drawdown and the $100k is 10% of their liquid net worth.

Can anyone point out the risks/downside to this?

Thanks

the kid
More...


u overexcited me with this 12 spot talk.

say spot vix did see 12..lets say by end of sept. your choices to go long would be oct to may...lets say you chose long nov. most likely nov futures would be 16 at that point. you would be fighting convergence pull to spot if spot vix played 12-15...but of course a huge move and say spot runs to 20, nov will hold a premium of maybe 2 pts by then so u may earn 4-6 points..but barring 20 plus vix u would most likely lose with outrights.

my point is doing outrights is very tricky and not intuitive. personally i would setup a fly with a long vol bias when spot gets to your targets. you can earn full points on flies if your direction targets bang. for instance..buying 1 sept, selling 2 oct, buying 1 nov paid out at least 2 points in the last run (i don't have the data handy but probably more so from before the vol)

anyway...good luck
 
Soon2Bgreat said:
As you say the max risk is capped.

Practically, the trick is timing (as is the case with all long vol). If you don't get a move for 6mths and you lose 50% of the premium, then even if VIX doubles, you're just back to your initial capital.

...the more time passes between inception and when the move happens the bigger/quicker the move needs to be to make up for that.
More...

premium? not using options here.
 
sellindexvol66 said:
u overexcited me with this 12 spot talk.

say spot vix did see 12..lets say by end of sept. your choices to go long would be oct to may...lets say you chose long nov. most likely nov futures would be 16 at that point. you would be fighting convergence pull to spot if spot vix played 12-15...but of course a huge move and say spot runs to 20, nov will hold a premium of maybe 2 pts by then so u may earn 4-6 points..but barring 20 plus vix u would most likely lose with outrights.

my point is doing outrights is very tricky and not intuitive. personally i would setup a fly with a long vol bias when spot gets to your targets. you can earn full points on flies if your direction targets bang. for instance..buying 1 sept, selling 2 oct, buying 1 nov paid out at least 2 points in the last run (i don't have the data handy but probably more so from before the vol)

anyway...good luck
More...

thanks for the input. I guess what I need to figure out is what is the best way monetize the move from spot vix 12 to 16. Is it an option to just buy the front month and roll it close to expiry? by the way at this stage I am just musing, not going to steam in until I have done my research fully.
 
You must log in or register to reply here.
Back
Top