VIX ETF/Futures/Options Discussion Thread

[mahras2]

atticus> That makes sense. Wouldn't mind a move up to 8.25...would be nice for the 1/2 position. However, just not comfortable being short VIX even with such an attractive roll in the face of the macro climate. If I wanted to be short vol, I think a better trade with a loss floor is being long EURCHF which can serve as a defacto long risk/short vol position. Of course that has a whole other host of factors to consider but its in the backburner especially with it trading near <100pip to the floor and with +25bp carry on my retail account.

vvol spikes are usually followed by flattening of the vix curve. Happens alot around SP peaks. If you believe that to be the case, IMO the best risk adjusted flattener play is short the 30-60 day switch, long the 60-90 day i.e. long the 30-60-90 day fly in the futs 1:1.

Thanks for the trade idea. The thing is the VIX futures curve didn't flatten...just the near strike implied volatilities. The futures curve at close today vs. close of friday is attached to this post. Let me know if I am getting that wrong.

I guess the spike in spot VIX was due to the expiry and should be ignored. Its a good thing because I am basing my VIX punting on a stat model so I am going to go back and scrub out the data around expiry time and see what the effect to the signals were.

 

[Jerkstore]

It's not expiration that fucks with the vix cash number-- its the weekend, especially the 3 day weekend. Don't confuse this with the actual vix expiration calculation which is NOT the vix cash number.

You can estimate how far the vix cash number is off. Do this: look at the ATM SPX options' theta and vega numbers. Multiply theta by 2, and divide by the vega. This will give you a rough trading day vs calendar day model vol difference.

The term structure didnt change because nothing changed or happened today.

Besides, what is the point of doing a 3 leg fly to play the term structure? Is this a customer haircut issue? Why not just do the 30 day/60 day future spread smaller, or even a much smaller 60 day future outright? My concern for you would be paying 3 .05 wide markets (which makes me money, but I digress...) Vix direction and term structure arent exactly the same thing, but they are darn close-- and at the very least the shortterm(less than a week) p/l will be almost identical if you know how to model the risk.

 

[sle]

Quote from Jerkstore:
Besides, what is the point of doing a 3 leg fly to play the term structure?

Stable flys are good ways to generate carry, if you do them risk-neutral. I would think flys are not volatile enough to properly play dislocation of the term structure, but what do I know...

Quote from Jerkstore:
Vix direction and term structure arent exactly the same thing, but they are darn close-- and at the very least the shortterm(less than a week) p/l will be almost identical if you know how to model the risk.

True, though risk-weighted curve spreads do show extreme dislocations every once in a while that is beyond regular risk-on/risk-off. If you trade them smartly, you can lock-in value, but as you say, you'd need to hold 'em longer then one week.

 

[rallymode]

Quote from Jerkstore:



Besides, what is the point of doing a 3 leg fly to play the term structure? Is this a customer haircut issue? Why not just do the 30 day/60 day future spread smaller, or even a much smaller 60 day future outright?

It's a totally different play. Do you actually trade these or do you just clerk for the mm?

 

[Jerkstore]

Quote from rallymode:

It's a totally different play. Do you actually trade these or do you just clerk for the mm?

Ha, dude, you obviously dont grasp my point.

Term structure spreads can easily be translated into single future equivalents. This is exactly what our system does automatically all day, every day. Not exactly the same, but most traders will be better off trading fewer contracts to equal very similar risk. Giving up 10 to 20 cents on each side of a fly execution will dwarf any edge that may be there.

 

[atticus]

Quote from Jerkstore:

Ha, dude, you obviously dont grasp my point.

Term structure spreads can easily be translated into single future equivalents. This is exactly what our system does automatically all day, every day. Not exactly the same, but most traders will be better off trading fewer contracts to equal very similar risk. Giving up 10 to 20 cents on each side of a fly execution will dwarf any edge that may be there.

OK, what's the = to the Feb/Apr/Jun fly (short body)? Just curious.

 

[rallymode]

Quote from Jerkstore:

Ha, dude, you obviously dont grasp my point.

Did i ask about your employer's system or for a synthetics lesson, dude?

Firsty, the futures fly is not fungible with a switch traded smaller or ratioed as you implied earlier. Secondly, given how spreads are native to the CFE and are often 3 cents wide 20+ up that's a 6 cents spread not 15, which brings me to my third and last point. On the surface, you seem to have sufficient knowledge about the product so i realize that you are likely exaggerating to support your statements but what you need to realize is that seeing who is posting in the thread you should tone it down as this is not your average ET audience.

 

[sellindexvol66]

Quote from rallymode:

vvol spikes are usually followed by flattening of the vix curve. Happens alot around SP peaks. If you believe that to be the case, IMO the best risk adjusted flattener play is short the 30-60 day switch, long the 60-90 day i.e. long the 30-60-90 day fly in the futs 1:1.

not that rally needs my backing as another switch trader; but the fly approach to a targeted flattening of the curve imo is far better than replicating through single future equivalents; although personally i would not go 1:1.

 

[Cache Landing]

Quote from Jerkstore:

Ha, dude, you obviously dont grasp my point.

Term structure spreads can easily be translated into single future equivalents. This is exactly what our system does automatically all day, every day. Not exactly the same, but most traders will be better off trading fewer contracts to equal very similar risk. Giving up 10 to 20 cents on each side of a fly execution will dwarf any edge that may be there.

Definitely not true for the small retail trader. Also, spreads aren't necessarily 10 cents.

 

[Jerkstore]

Quote from rallymode:

Did i ask about your employer's system or for a synthetics lesson, dude?

Firsty, the futures fly is not fungible with a switch traded smaller or ratioed as you implied earlier. Secondly, given how spreads are native to the CFE and are often 3 cents wide 20+ up that's a 6 cents spread not 15, which brings me to my third and last point. On the surface, you seem to have sufficient knowledge about the product so i realize that you are likely exaggerating to support your statements but what you need to realize is that seeing who is posting in the thread you should tone it down as this is not your average ET audience.

What am I exaggerating? Nevermind, that conversation isnt worth anyone's time...

Here's the fact of the matter: I have never traded as a customer. I don't know exactly what tools you use, or how you make your decisions. By no means am I trying to insinuate that market makers are smarter. In fact, when it comes to timeframes over a day, I can guarantee that any customer who successfully trades vix futures for a living can teach me quite a bit.

This is exactly why I am here, and why I let people know I am a market maker. My expertise is in automating computer systems to take advantage of super shortterm liquidity imbalances -- not in holding large positions for weeks on end. My advice may not be applicable to a lot of customer traders on this site. Do with it as you like.