riskarb's trading journal

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CPTrader - yes, i think we are talking about the VIX futures - the volume runs 1,500-3,000+ contracts a day and the spread tends to be around 1 point ($100) but may be narrower or wider depending on market conditions.

interesting dynamics in the volatility curve - yesterday and today the VIX moved higher by a similar measure but the VBI futures made a significant move up yesterday but not today.. - the VBI futures of course currently reflecting the roughly 60-day fwd volatility vs the 30-day vix

riskarb, since you intend to go long the VBI futures - how much further volatility expansion are you expecting? - this current VIX spike is just about at the Oct 05 level and close to April 05 level - what is the reason to believe that it's going much further?
 
Yes....That's exactly as it seems. It appears as though the VBI "futures" are nothing more than approximation of the some future value of its underlying. It's gotta be due to the daily changing of the calculation of the VIX underlying itself. The CBOE trying to maintain the weighted 30 day average of options in the VIX calc is presenting problems with them attempting to make a futures product of the VIX.

But then it's not really a futures product at all if there's no constant calc for fair value. Forgive me if this is elementary...I've never really thought about the VBI. I'm thinking while I'm typing...never a good thing.

I could see why it would be used to lay off some (but not all) gamma risk. But then again if the vol term structure inverts in the short term and the corr between the futs and the index goes negative...wouldn't that negate its functionality as a (partial) gamma hedge? Lot's of moving parts to this thing. Strange product.


Quote from fader:

the VBI futures of course currently reflecting the roughly 60-day fwd volatility vs the 30-day vix

riskarb, since you intend to go long the VBI futures - how much further volatility expansion are you expecting? - this current VIX spike is just about at the Oct 05 level and close to April 05 level - what is the reason to believe that it's going much further?
More...
 
Quote from Dr. Zhivodka:

So as the slope of the term structure changes the correlation between the VIX and the VBI may be zero or even negative?

Trippy.

If you choose to hedge your VIX risk by using the VBI futs...how can that be done if at times they can be neg correlated? Seems like a flawed product.

I assume this can occur due to the way that the CBOE weights the options in the calculation of the VIX index itself.
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In a sense they trade like var swaps; they tend to overshoot. There is no fungible spot to trade, so while the oscillator [VBI/VIX] is bounded, it can swing large.

I originally considered trading these as shadow long gamma hedges into bull short gamma, but quickly found in simulation that it's very probable to lose on your bull short gamma and futures.

I would only consider trading these under the following conditions:

1) Large discount to VIX in a low vol environment, long, of course.

2) Selling DEEEEP otm put skews and buying VBI in place of a d/g hedge.

Those conditions are conjoined; you would want to sell some bull dgamma to hedge the VBI/VIX oscillator buy signal on #1 [-oscillator value].
 
Quote from Dr. Zhivodka:

So as the slope of the term structure changes the correlation between the VIX and the VBI may be zero or even negative?

Trippy.

If you choose to hedge your VIX risk by using the VBI futs...how can that be done if at times they can be neg correlated? Seems like a flawed product.

I assume this can occur due to the way that the CBOE weights the options in the calculation of the VIX index itself.
More...

Analogous to the FI tenors, but with those you have the ability to spread with cash bills/notes/bonds. Not so with this moronic product. I am not buying VBIs tomorrow. What douchebag wrote this model? GWB?
 
I remember a few years ago you were writing a book on trading volatility (or something like that). Whatever happened to that?

Good luck on the journal!

ssynic
 
Quote from Dr. Zhivodka:

I assume this can occur due to the way that the CBOE weights the options in the calculation of the VIX index itself.
More...

I assume otm-delta-weighted but that's a guess. A variance product would've been fantastic. It's little wonder these things have OI that you can count on two hands.
 
Quote from smilingsynic:

I remember a few years ago you were writing a book on trading volatility (or something like that). Whatever happened to that?

Good luck on the journal!

ssynic
More...


The urge ceased immediately upon receiving the advance. Funny thing. I was dating a girl from "W" who thought very highly of my intellect[package] and tried very hard to move the idea. Problem being, she and her superiors were about as bright as a cocker spaniel with head-trauma. Anyway, too Niche-y, and I tend to ramble A LOT.

She ended up at a major hedge fund.
 
In all seriousness:


I will post a weekly recap with header which will be easily to query with the search function. Recap of positions, PnL, major analytical points of interest, etc...
 
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