VIX futures decoupled from underlying around the end of March?

stochastix

stochastix

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What is the interpretation or explanation? Same pattern for the other future-dated contracts. This was around the time of the market halts.

https://techcrunch.com/2020/03/16/s...ps-circuit-breakers-due-to-coronavirus-scare/

Duh. They already converged, weird artifact of charting on different axes

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Stochastic Trends and Cointegration in the Market for Equities

"A stock index and its futures price will be co-integrated if the cost of carry, or the difference between the dividend yield and interest rate, is stationary"



From the paper: " However, when the cost-of-carry is included in the cointegrating equation, the S&P 500 index and index futures prices are cointegrated. Thus, a finding of cointegration in equity markets depends critically on the cost of carry and, as suggested by a no-arbitrage pricing model, equity spot and futures markets are cointegrated."

and that "decoupling" is a "structural break" . Ahh yes, its all coming back to me now
 
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Some thoughts/insights from my colleague John Thorpe:

am very spooked by the rising VIX with stocks here....

Looking out at the next few month contracts ...they are all elevated (surely due to election hedges)...they will either converge up or converge down...or in the middle...who knows not I...



September silly season is about to be underway.


The city folk come back from the Hamptons next week


Pension/Mutual fund, insurance companies, and US Gov year end is end of Sept


VIX quarterly expiration is Sept 16, with that big opex Sept 18

Oh ya and the Fed always seems to speak on VIX expiration days....fun!


I can see the silliness continue through these dates...whatever moves the big dogs are making, theyre making it now. I see it under the surface.


I will be hyper vigilant thru thru October (well i guess November because of the election....but as always its a non-event for the most part)


And not to mention the AAPL stock split....of course that was going to cause some wonkiness
 
What sort of trades would you put on to bet that the series will reconverge?
Is the correct terminology that the markets are in contango when the spot price is less than the nearest in time contract price ,and the prices are increasing as distance forward in time of the futures contract increases ?
Since you can't buy the VIX directly, is there a good VIX etf to buy or sell short? How would you go about determining the size of each side of the pair, should it be equal weighted by dollar value or some other metric ?
How about determining the size of the max possible drawdown while you are waiting for the convergence?
 
Compliments of the CBOE web.. here are the products we trade through our company,
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The monthly expiration is where the liquidity is. the exchange has weekly's (week 38 symbology VX38U20). the volume is today's Vol. You can trade these as a spread Buy front , sell deferred, buy outright, sell outright.. depending on your point of view Using the above September at 26.35 and October at 31.00 is contango. The spot index (the first Value) is yet lower than the September at 22.98 these are Contango and the spot price and futures should converge(necessarily ) at expiration of the futures contract. Beyond October you see Backwardation. clearly the market is reflecting more volatility in the next few months and higher volatility than now through Q2 of next year. The initial Margin is currently 13,750.00 to be maintained at 12.500. spread margins are half of that. Each point is equal to $1000.00 from 26.35 to 27.35 = $1000.00, Calculating your drawdown? place a stop GTC.. always select your acceptable risk prior to executing your plan, a Professional can help you with this and more complex strategies. Please call John at 310 858 6113 or email him at john AT cannontrading.com
 
stochastix said:
What sort of trades would you put on to bet that the series will reconverge?
Is the correct terminology that the markets are in contango when the spot price is less than the nearest in time contract price ,and the prices are increasing as distance forward in time of the futures contract increases ?
Since you can't buy the VIX directly, is there a good VIX etf to buy or sell short? How would you go about determining the size of each side of the pair, should it be equal weighted by dollar value or some other metric ?
How about determining the size of the max possible drawdown while you are waiting for the convergence?
More...
Long on SVXY used to be a good play until they took the 3 x leverage.
May be right around election time long short vix etfs assuming vix pops at that time as expected.
 
Girija said:
Blame the irrational call volumes and the unabated market rally
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So short vol? I have been averaging down VXX(long vol), but I don’t like to be on the opposite side of the guy in the video :) Should be interesting.
 
qlai said:
So short vol? I have been averaging down VXX(long vol), but I don’t like to be on the opposite side of the guy in the video :) Should be interesting.
More...

Volatility is going to spike around election night. Mark it, dude.
 
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