VIX fly / spread journal

[sellindexvol66]

Quote from rallymode:

Whoever you talked to at the OCC is a liar. The guy I spoke with didn't sound much different than the incompetent hacks you would encounter working at the DMV. I called back in July and also had a couple of people of stature call for me and from my understanding the only way to change policy is with a move from the board. So unless you know anyone in the exec office of their top clearing members or trustees your phone calls would fall on deaf ears.

I suppose it won't hurt to start a campaign though. Maybe you guys can raise enogh heat around it.

If I was local like you, I would walk right in to the offices of the executive officers.

Do i have to take a flight there to walk you in ?

 

[garachen]

I agree this is a really confusing move. I've generally found exchanges fairly willing to work with me on changing margin when presented with a reasonable argument. I was trying to get the OCC to do flys for somewhere around $150 - $300 which didn't seem crazy at the time. All seemed to be on track and I had no hint that instead he was going to do the opposite. CFE wasn't even aware of the change until I told them.

My guess is, since they mostly do options, their model 'wigged out' on vix calendars or somebody large was annoyed at all the smaller players messing around in the calendars and wanted them priced out. I could believe either.

Not so much an issue for me since I can do a cheap margin loan but if I were in Chicago I'd call and arrange a meeting to present my case.

 

[rallymode]

Quote from garachen:

or somebody large was annoyed at all the smaller players messing around in the calendars and wanted them priced out.

I think I posted in this thread a while back that this is precisely what I was told by one of my connections unofficially. It explains why the volume never dropped and it's the reason why I never pressed the issue further. It would have required too much leg work and perhaps greasing some wheels and my pockets aren't that deep. It was easier for me to explore my broker relationships further and arrange higher leverage.

 

[rallymode]

Quote from sellindexvol66:

If I was local like you, I would walk right in to the offices of the executive officers.

Do i have to take a flight there to walk you in ?

Believe me man I've tried. Pulled all the strings I could. You think I like taking a pay cut?

I figured I'd give it some time maybe they will change their stance. I may put in another effort over the winter if get too bored.

 

[Jgills]

i took my biggest loss ytd today and figured i'd write about it here.. i had taken the position that if the debt ceiling was not resolved by today the inversion in the front would be much larger, similar to what existed last week.

i initiated the position long oct / short nov in regular 1:1 calendar spread fashion last week monday or teusday, and watched the oct/nov invert to as much as -0.80 cents, which made me quite happy. i took small pnl that day after announcments were made that there was progress and it collapsed back to -0.30. i then re-initiated the position with the same thesis at 0.15 on the oct/nov spread a day later.

the re-initiation was on the basis of my thesis that they will continue to procrastinate and vols would hold a bid. to my pleasant surprise the vote did not pass over the weekend and i watched the spread collapse again earler in the day to as low as the low 0.20's. unfortunately, even though i was right about how long it would take to come up with a solution (which is what gave me the resilliance to maintain the position through wed/thurs ripping against me in my face) i was wrong about how the spread would act, as clearly it steepened very quickly and vols sold off with the rumors of an agreement being reached very shortly. I wanted to maintain the position, but seeing as there are only 2 days to settlement, i fear that washington has instilled the confidence in the market that a deal will be reached before the deadline, which is also a day after oct settlement.

now that i've written about it, what do you guys think about the position i took, the thesis behind it, and the corresponding loss that i took.

should i have noticed much earlier that i was the wrong way? did any of you take a similar position?


the loss gave back about 20% of the year's gains. and i closed the position while the spread was in the 80's today, clearly got out at the worst time too

 

[njrookie1]

your view is too strong...

 

[cdcaveman]

i don't know what i'm talking about.. but you took way to much directional risk up front.. but you obviously know that.. i'm sure your not looking to hear from me specifically haha.. but whatever.. better to trade flys instead of single's

 

[rallymode]

Other than trading smaller, you should avoid having a position in the front spread when its within 7-10 days to spot. As far as the trade there is no reason for the front to stay inverted for long, we are not in a bear market. Last week vols were very well bid(they still are) relative to the SP. If you thought there would be no resolution, you would've been better off selling the spoos and hedging with some short vol.

 

[garachen]

Trading that close to expiration in that direction you are betting too heavily on high and increasing levels of sustained panic. When close to expiration don't get fixated on absolute price of the spread. It becomes meaningless as the front outright gets more tightly tied to the index. It's actually safer to trade the outright during panic times because overextended moves and sharp reversals are easier to spot.

 

[Jgills]

thank you all for your feedback.

my thought process was slightly different though, i was not expecting sustained panic, just sustained uncertainty.

i've noticed that heading into events, spot generally inverts relative to the front month, even if it is only event driven vol bids which fade as soon as the event is over and it is generally difficult to take advantage of, i thought that i could do it in this case since the event coincided with oct expiry.

now since the event coincided right around expiry of the futures, you would see that same effect but it would cause the oct to be greater than nov since oct would essentially be spot.

clearly in this situation i was wrong (and i can take credit for getting out at the absolute worst time)

the thought process in my head when i got out was that my thesis had to be wrong because the politicians were able to instill enough certaintty in market participants to drive vols lower and even surpress spot to be below nov. i dont know if this is because of a flow thing (people can either buy the options that comprise spot, or buy the nov future because oct expiries too soon for their hedge and they chose the nov future) but even knowing this i felt comfortable because in my head i believed that spot would catch that bid for protection.

in general, what are your thoughts on an approach like that exclusively in the front to supplement my additional strategies elsewhere?