Volatility Trade - countertrend

[Niten Doraku]

I would imagine that the key difference is your actual cumulative volatility position. What do you think your net root time vega was in any of those spreads? My sense is that anyone who was long index vol this year, either outright or via any smart spreads did not fare well.

That's the point I'm making. Personally, if it wasn't for the backwardation in April and August, I would be down this year.

SIV66 - are you net long VX futures? The curve has been in steep contango and trading at historically high premium levels to spot for most of the year.

In order to be profitable, I would imagine your ratio of short to long contracts is net short, unless I'm oversimplifying here.

Trading the volatility of volatility has been interesting this year, however.

 

[sellindexvol66]

I would imagine that the key difference is your actual cumulative volatility position. What do you think your net root time vega was in any of those spreads? My sense is that anyone who was long index vol this year, either outright or via any smart spreads did not fare well.

here is a recent example from 2-3 months ago: long nov (VXX) short dec (VXZ), short jan (VXF8) long feb (VXG8) ratio with less on the ND and more on the JF. to me the way i constructed it, it was long vol and short vol.

the skip over to short jan even with greater ratio was modeled to earn if vol exploded ..ended up earning nonetheless even with no vol and nov coming in in my particular time frame.

this is very very different from taking a a short ETF , and hoping it will come in.

 

[Niten Doraku]

here is a recent example from 2-3 months ago: long nov (VXX) short dec (VXZ), short jan (VXF8) long feb (VXG8) ratio with less on the ND and more on the JF. to me the way i constructed it, it was long vol and short vol.

the skip over to short jan even with greater ratio was modeled to earn if vol exploded ..ended up earning nonetheless even with no vol and nov coming in in my particular time frame.

this is very very different from taking a a short ETF , and hoping it will come in.

To clarify - you were net long vol in the near term with a calendar using VXX and VXZ; you were net short vol with a calendar using Jan/Feb; you were positioned large enough in the short vol position to overcome the negative carry of your long vol position; if vol had expanded your model expected the long vol position to profit more than potential loss in your short vol position.

 

[sellindexvol66]

That's the point I'm making. Personally, if it wasn't for the backwardation in April and August, I would be down this year.

SIV66 - are you net long VX futures? The curve has been in steep contango and trading at historically high premium levels to spot for most of the year.

In order to be profitable, I would imagine your ratio of short to long contracts is net short, unless I'm oversimplifying here.

Trading the volatility of volatility has been interesting this year, however.

good points here guys.

i try to be long vol in combos front curve, short vol middle, back.

To clarify - you were net long vol in the near term with a calendar using VXX and VXZ; you were net short vol with a calendar using Jan/Feb; you were positioned large enough in the short vol position to overcome the negative carry of your long vol position; if vol had expanded your model expected the long vol position to profit more than potential loss in your short vol position.

yes.

all good points in this thread btw, refreshing.

later i will reply to others...family stuff

 

[Martinghoul]

BTW, here's the NY Fed weighing in on the issue:
http://libertystreeteconomics.newyo...latility-puzzle-are-investors-complacent.html

 

[sellindexvol66]

This is probably a dumb/ignorant question but I'll ask anyway...have you looked at doing this trade with VXX instead? It seems there wouldn't be as much risk since all the months trade the same underlying.

never ever once looked at any of these etf's. to me, these guys shorting these are like put sellers; but far more dangerous. vol shorting is not like equity shorting. they seem to simply sell and then hope for mean reversion. my stuff puts together groups of futures that imo are "out of line"..its mean reversion within those constructs , but not mean reversion of vol rises.

 

[Gambit]

never ever once looked at any of these etf's. to me, these guys shorting these are like put sellers; but far more dangerous. vol shorting is not like equity shorting. they seem to simply sell and then hope for mean reversion. my stuff puts together groups of futures that imo are "out of line"..its mean reversion within those constructs , but not mean reversion of vol rises.

Thanks for the reply. Are you legging in or just crossing the spread and executing your combo all at once?

 

[guspenskiy13]

Long vol has been a 'BDSM' trade of YTD...mainly due to weeks of premo bleed (even with decent entry) for a quick, sometimes even intra-day, opportunity to close out...

For me, it has required extreme active managing of positions & opportunistic timing; via synthetics...

In my 'active' portfolio, I've done so by strategically selling SVXY premium 1-3m out (keeping in mind various vol components & mkt positioning); buying cheap, less convex VIX spreads & combos; while offsetting these positions on spikes via UVXY nakeds & put spreads.

Here's the YTD PnL (P/L YTD) distribution and yes, I've been heavily biased towards longer vol since mid-June...

...there has been a few 'uncomfortable' times, mainly during mid-July; but I've averaged down further out by DTE, given the fact how much SPX ivol & its var increases can depress priced on such products...

Lots of profits lost by not closing existing cheap long vol on the spikes (or by not offsetting enough)...but I just couldn't bring myself closing those spreads at VX30d of 13-15. After all; I'm partially hedging my equity/credit exposure this way...so this 'sacrifice' should pay out...eventually.

P.S.

I've noticed a tremendous amount of vol tourists, casually selling vol (buying UVXY debit put spreads) every week, as if it's free money. IMO, despite the August performance, people underestimate the amount of convexity in these products @ these levels of the VIX term. But, the VVIX prices, certainly do.

 

[sle]

Today, I was looking at the 5 day trailing realized vol and for a second thought that I forgot to annualize it So yeah, vol is LOW.

 

[guspenskiy13]

So yeah, vol is LOW.

Smallest VIX cycle by range & VIX complex RV has been nowhere over the past 2 cycles, too...

I'm sitting on decent profits from SVXY short structures (mostly Jan)...but looking at current VIX Dec / Jan @ low 13s-14s...there could be some decent premo burn, if spooz continues to grind in the range & this week turns out to be a 'non-event'...