Questions on Trading VIX and VIX Derivatives - Liquidity and Strategies

[cesfx]

Hello all!

I have a couple of questions about Vix and Vix derivatives that I can't find practical answers too.

Bis/ask: Are VIX, VXX, UVXY, and their options liquid enough to trade at the mid price in small size? How reliable are fills in these instruments given their typically wide bid-ask spreads?

Strategies: I've read around about more aggressive strategies like shorting spreads or selling calls, which are not my preference. Very little is mentioned about simpler strategies like vertical bear put spreads targeting mean reversion. Are these common or effective in trading VIX instruments?

I'm aware that VIX options are priced based on VIX futures rather than the spot index, and I know about the decay of products like VXX and UVXY. I can see these factors reflected in the options chain, but practical insights or experiences would be invaluable.

I wouldn't trade single legs, naked, diagonal or calendar. Vol of vol is at a different level.

 

[2rosy]

variance future vs vix over a period of extraordinary events might work

 

[stepandfetchit]

I don't trade VXX, but for VIX, UVXY, UVIX, and SVIX, I find that using synthetics result in minimal haircut on entry and exit (since I may hold for a week to a month, my exits seem to have no haircut) Note: my positions are always short vol, so my synthetics on all but SVIX are short. The VIX options (front monthly) are most liquid. I avoid the VIX Weeklies as they seem to have insufficient liquidity [also something seems off with them].

 

[cesfx]

variance future vs vix over a period of extraordinary events might work

Variance future?

I don't trade VXX, but for VIX, UVXY, UVIX, and SVIX, I find that using synthetics result in minimal haircut on entry and exit (since I may hold for a week to a month, my exits seem to have no haircut) Note: my positions are always short vol, so my synthetics on all but SVIX are short. The VIX options (front monthly) are most liquid. I avoid the VIX Weeklies as they seem to have insufficient liquidity [also something seems off with them].

Interesting, what kind of synthetic?
Synth short: - call + put, or synthetic put with the etf?

 

[stepandfetchit]

Variance future?




Interesting, what kind of synthetic?
Synth short: - call + put, or synthetic put with the etf?

For a short synthetic: short call, long put at same strike, near the money. I began these as a replacement trade for shorting HTB or NTB like UVXY and UVIX. Was simple to see and think about pricing, as it tracked the underlying close enough. (If strike was slightly above spot, then the credit received for entry was (spot-strike) -cost of carry. (This, as you know, is not the entire position, but is the interesting part) -- I am slowly weeding these from my normal trading, as the hedging/protection leg {often long call at SPOTx2} is a big headwind on Return on Risk capital. Other structures are not as clear and clean as the synthetics with risk protection, but have better return on risk.

 

[newwurldmn]

variance future vs vix over a period of extraordinary events might work

my friend blew up on that trade. Long var short vix.

 

[cesfx]

I am trying a put debit spread on UVIX, filled at mid easily.

 

[stepandfetchit]

I am trying a put debit spread on UVXY, filled at mid easily.

FWIW: For these odd products, Not sure "MID" is always equivalent to 'fair' price. -- The BID and ASK on some of these less liquid products are not always symmetrically distant. -- I find that if I have time, then begin with limit set very aggressive, then move my limit to keep from being blind-sided by wonky bid/ask. (That is one thing I liked about the synthetics: the pricing was obvious)

 

[2rosy]

my friend blew up on that trade. Long var short vix.

interesting. what year if you know?

 

[lindq]

I'd suggest that anyone who is tempted to trade VIX derivatives just shoot yourself now and avoid a lot of grief later.