VIX-Trading. What is the best way to make money?

Attached graphics shows an equity curve under the assumption that premium of the written put would be 10% of payroll each month and that two times a year the VIX is below the strike of 11 (but no more than to make a drawdown of 10%). Its all assumtions.

Who can make some backtesting on historical data? What information is further needed?
 

Attachments

gg12,
First of all you are only trading 2 contracts so at this point none of this really matters because is a pretty small amount of money. Your plan of constantly selling puts and compounding the profits has crossed the mind of every new option trader, but there are very good reasons that experienced players do not think in those terms. There may be opportunities to make money selling VIX Puts but it won't be every month for years to come where you make easy money without doing anything.

The VIX has expired under 12 and under 11 many times. Furthermore, look at the final closing VIX level on expiration Wednesday, it is usually lower than where the VIX is currently trading so short Puts are more dangerous than you think. You are correct that it does not usually go under 10 but everyone knows that. Look at the market for 10 level Puts. Every month except 1 is zero bid. It's pretty hard to make money selling an option at zero. Option market makers know what they are doing and there is no easy way to just buy or sell options every month with a simple strategy and make money every single month.

Additionally, if you think you call roll your short puts to the next month if they go against you then you do not understand how the VIX futures work. If the VIX goes to 11.5 as we near expiration, then your short 12 strike Puts will be worth more than you sold them, but the June VIX futures may or may not move so you might not be able to get enough to roll the money to the next month.
 
opt789

Thank you for your post!

Agree with your remarks. The VIX settlement has been

1 of 32 below 10
5 of 32 below 11
11 of 32 below 12

But I think a strategy can be created based on the history.
And you are right, it would be a very simple system.
Not much time consuming as well.

The only question I have is why do you think very small accounts cant make it? I have the same relative commission for 2 lots and 200 lots. $100 is real money isnt it?

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CBOE Volatility Index Futures (VIX) Settlement Values


2007:
APRIL: 12.03
MARCH: 129.83
FEBRUARY: 99.54
JANUARY: 107.06



2006:
DECEMBER: 100.53
NOVEMBER: 102.68
OCTOBER: 114.34
SEPTEMBER: 112.89
AUGUST: 122.85
JULY: 170.05
JUNE: 172.85
MAY: 140.25
APRIL: 119.41
MARCH: 111.45
FEBRUARY: 120.34
JANUARY: 126.15



2005:
DECEMBER: 101.75
NOVEMBER: 123.06
OCTOBER: 151.72
AUGUST: 128.19
JUNE: 110.12
MAY: 138.64
MARCH: 136.26
FEBRUARY: 112.93
JANUARY: 127.72



2004:
NOVEMBER: 128.44
OCTOBER: 131.57
SEPTEMBER: 137.25
AUGUST: 174.89
JULY: 131.34
JUNE: 139.97
MAY: 183.55
 

Attachments

"But I think a strategy can be created based on the history."
Yes, I agree, but it needs to be a trading strategy with good risk and money management and careful plans as to when to get in and when to get out. Concentrate your efforts on good trading techniques each month to make what you can from the markets, don't spend your time running compounding profit scenarios.
"$100 is real money isnt it?"
Not to people earning their living from trading, but I think you are smart to keep it small and see how it goes. If nothing else it will be a good learning experience and you don't have much money at risk. Make sure you spend a lot of time learning everything you can about options before putting a lot of money into trading them.

I know where all the expirations have been, where they are in relation to each other, the forward future prices, and historical VIX. After researching it myself I can tell you that money can be made but you are oversimplifying things. If it was easy everyone would do it.
 
opt789

Thank you for your thoughts! I agree with you.
Please allow me to comment your last statement.

"If it was easy everyone would do it."

Even if you would print your system in the newspaper tomorrow and 10.000s of people would read about it, only a few people would have time to take it seriously and follow it.

In addition, even most of those people initially following your or my system would quit after some time because of drawdowns or because of getting bored with the system. (Also money management is often overlooked.)

Reason for that is that most people have only confidence into their own ideas and systems. Its rare that someone trades signals from a blackbox output over a long time.

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I think a system has to be simple.
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The difficult thing for a system developer is to come to a conclusion. To get confident is a time consuming process of virtually never ending research, building prototypes and building and testing a hypothesis. Thats the non-easy part.

Once done I forget my efforts. I am not past oriented. Nobody will give me back my invested time and effort. Sharing will give me some reward. Sharing will also show that I am thankful to the community. Sharing will also provide some feedback from peers and provides some ideas where to make the next developments.

Since the markets are no a static systems, adapting to innovation and personal change is always required.

The hardest part is always to change myself and also to accept that a plain simple system could work.
 
I didn't mean a simple system can't work, I meant that trading options profitably over the long run is not easy. If you find a trading methodology that works for you then that's great, but if you think that most everyone trading VIX options hasn't already factored in everything you know, and a lot more, into the prices then the best things I can say is, good luck. Like I said, at worst it will be a good learning experience for you. Selling out-of-the-money options works most of the time so you will probably be profitable many months. The question comes when something unexpected, or that has never occurred before, happens and you have been compounding all your profits.
 
Quote from opt789:

gg12,
It's pretty hard to make money selling an option at zero.
More...
Yes, maybe at only 2 contracts. But what about if you sell 100??
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:confused:
 
Quote from LeonPhelps:

Yes, maybe at only 2 contracts. But what about if you sell 100??
_________________________________

:confused:
More...
Selling an option at zero prem?

No prob. Just make it up with the volume! :D
 
opt789

Something unexpected would mean that the vola drops below 10. Basically that means that the SPX stops to move. Do you think thats realistic?

VIX options cant be compared to index or stock options. There is a big difference. I bet that you and I know much more than some big players out there.

The very interesting thing is that we all can run strategies which were not possible sometimes ago due to the commission structure, but now retail traders come to a same level as the professionals.

Its all about experience and education. More and more new traders will unexpectably beat the market.

More and more new traders dont waste their money any more.
 
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