I think you either trade futures or options on vix Index or you don't really trade vix.... Idk anyone myself making money trading these vix etfs .....
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Please comment on this simple volatility strategy
- Thread starter londonkid
- Start date
I did this trade last year - the risk in this trade is the cost of the roll waiting for the spike in vol. The trick is to find a way to reduce your cost basis each month. I sold ~15 delta VXX puts to offset the /VX drag (I'm sure there are other ways to reduce your cost basis, but this was how I did it). So if the spot is at 12, you are selling 11 VXX puts. It doesn't perfectly cover your roll cost month-to-month, but it does help offset part of that cost. I would sell the position the first day the VIX spiked over 15.
Another variation (full disclosure, I've never put this variation on so I don't know if it would work in practice) would be to sell that 15 delta VXX put and use that to finance the purchase of a VXX call spread in a close to cash-less transaction. I forget what the skew was, but my best guess is that with VIX at 12, you'd be selling an 11 put to finance to purchase of a 14-15 call spread.
It is a profitable trading strategy in the long run if you reduce your cost basis and offset the drag cost. I'm not sure if it is profitable if you don't offset the drag cost. The only downside is having it not work for 5-6 months and giving up while you still have a loss.
thanks for the post. hopefully we will not be further distracted by trolls.
I read the following on the CBOE website:
Stacking and Rolling VIX Futures Positions
Because VIX futures of successive maturities track implied volatilities for successive 30-day periods, e.g. May 2004 futures track implied volatility from May 22 to June 21 and June 2004 futures track implied volatility from June 19 to July 19, they can be stacked to cover implied volatilities for longer periods of time. For example, a stack of May and June 2004 VIX futures approximately tracks a 60-day implied volatility (with a two-day overlap).
Investors can choose between stacking successive futures at the outset or rolling from one futures contract to the next as the nearby contract expires. This is analogous to choosing between stacking and rolling Eurodollar futures, or choosing between a fixed rate and a variable rate mortgage. Investors who hold the nearby futures position up until the date of expiration rather than rolling it shortly before expiration must remember that the Final Settlement Price will not match the VBI. Also note that the effect of rolling from one contract month to the next is not to extend your leverage from the first to the second expiration date, as it would if these were stock index futures. This means that the spread between the first and second futures prices should not be viewed as a cost of interest or "roll cost".
I am going to research more about this 'stacking' when I have some time. Sellindexvol66's suggestion of the 'strip hedge' seems good.
Stacking and Rolling VIX Futures Positions
Because VIX futures of successive maturities track implied volatilities for successive 30-day periods, e.g. May 2004 futures track implied volatility from May 22 to June 21 and June 2004 futures track implied volatility from June 19 to July 19, they can be stacked to cover implied volatilities for longer periods of time. For example, a stack of May and June 2004 VIX futures approximately tracks a 60-day implied volatility (with a two-day overlap).
Investors can choose between stacking successive futures at the outset or rolling from one futures contract to the next as the nearby contract expires. This is analogous to choosing between stacking and rolling Eurodollar futures, or choosing between a fixed rate and a variable rate mortgage. Investors who hold the nearby futures position up until the date of expiration rather than rolling it shortly before expiration must remember that the Final Settlement Price will not match the VBI. Also note that the effect of rolling from one contract month to the next is not to extend your leverage from the first to the second expiration date, as it would if these were stock index futures. This means that the spread between the first and second futures prices should not be viewed as a cost of interest or "roll cost".
I am going to research more about this 'stacking' when I have some time. Sellindexvol66's suggestion of the 'strip hedge' seems good.
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