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VXX a good buy at current levels?
- Thread starter mramaswamy1
- Start date
Quote from loufah:
One of the presenters on a TOS talk said that traders are finding other ways to hedge besides buying S&P put options, such as bonds.
And this happened in the last month?
Once the Spain can got kicked down the road for a few months...
And traders know Bernanke will print money 24/7 till November...
There is a perception of an effective lid on volatility.
They could even put off Euro Armageddon with a simple 10-20% devaluation...
With, like, one phone call... happy days are here again.
anything?? there short term futures exposure.. i have sold some puts on the vixy.. and they are now in the money by 4 dollars.. i'm wondering with all this talk if i should scrap the trade.. I'm not going to be stubborn and HOPE for something to happen.. i was figuring on getting in the vix in the summer doldrums.. get put the index.. sell some call premium till the fall and see if we get a good sell off.. To be honest i'm disappointed i'm not figuring a way into a futures options trade itself.. Why do i want to have an hard logarithm roll over my futures.. I KNOW if i'm going to be successful derivatives trader.. i'm not only going to have to figure out how to mitigate Time risk in options and options on futures.. I'm going to need to figure a way to exploit it! .. thats the real deal.. Combinations of Time spreading through options and the underlying futures seems the best way to speculate on contango and bastardization. haha opps wrong spelling Point being is.. if you are going to invest in a etf that is based on rolling futures.. are you not speculating on the actual contango slash bastardization curve itself?
say a number i've heard 73 percent of the time it trades in contango.. the few spikes when its selling backward will obviously not make up for the loss from contango BUT everything just needs to be known.. you can't just say.. well vol is low so buy a vix instriment.. Timing is obviously everything.. Know exactly what the trade is costing you.. How your going to mitigated the risk related to contango. No blanket statement in any investment works.. i'm sure theres a trader out there that has quantified the roll over risk and implemented it into exploiting it. i like the idea of knowing i'm probably going to be wrong alot of times.. and that i need to invest in such a way that i don't have to be exactly right on direction, and timing to make money
what about call backspreads in the futures themselves.. take a credit (very small) let them expire.. boom hugh vol swing.. your unlimited profit.. i like the constructive posts alot..
i think a good direction for this post might be to brainstorm and research exploiting the futures roll over contango.. or even just get exposure without roll over risk like the vxx has.. something.. AREN'T WE ALL HEAR TO HELP EACHOTHER! its already hard enough as it is.. This if we all help eachother we aren't going to move the entire market against ourselves! haha
say a number i've heard 73 percent of the time it trades in contango.. the few spikes when its selling backward will obviously not make up for the loss from contango BUT everything just needs to be known.. you can't just say.. well vol is low so buy a vix instriment.. Timing is obviously everything.. Know exactly what the trade is costing you.. How your going to mitigated the risk related to contango. No blanket statement in any investment works.. i'm sure theres a trader out there that has quantified the roll over risk and implemented it into exploiting it. i like the idea of knowing i'm probably going to be wrong alot of times.. and that i need to invest in such a way that i don't have to be exactly right on direction, and timing to make money
what about call backspreads in the futures themselves.. take a credit (very small) let them expire.. boom hugh vol swing.. your unlimited profit.. i like the constructive posts alot..
i think a good direction for this post might be to brainstorm and research exploiting the futures roll over contango.. or even just get exposure without roll over risk like the vxx has.. something.. AREN'T WE ALL HEAR TO HELP EACHOTHER! its already hard enough as it is.. This if we all help eachother we aren't going to move the entire market against ourselves! haha
and i have the feeling like i want out! i sold some puts on it.. there itm now and i'm starting to feel the pain.. as i've started to mathematically calculate.. the roll cost on the vixy might be to much to make it from here to october or at least whenever vol will pick up to make sense of the trade.. should have backspread in call options instead of selling cash secured puts.. the idea of paying roll cost and an ETF heading constantly towards zero drives me nuts!
VIX should bottom out this week into OPEX. Looking for around a point lower than the Friday close.
well i'm going to have to really get the contango roll over math down.. cause this trade seems like a time bomb.. back about 2 -2 1/2 months ago the vix was at 14 and change and the vixy was trading at 34 at that point.. so now the vix is at 16 and change and the vixy is trading at 28 and change.. my quick calculation
vixy now 28
vixy then 34
equals 6 dollar difference..
vix now 16
vix then 14
equals a 2 dollar difference.
put that together you get an 8 dollar loss in two months..
so thats 4 dollars a month .. of a thirty dollar instriment.. meaning thats 13 plus percent loss a month..
if my basis is 32 first month i'll be at around 28
next month all be between 24 and 25..
so all else being equal .. i will take a huge loss if the vix doesn't spike up to 25 or so in the near term.. selling calls in the vixy could no way neutralize the contango roll over loss! the 34 dollar call options for august is selling for 1.15 cents thats only 3 percent... no way that will neutralize ... i am not seeing how i'm not going to get completely jacked up in this trade.. vol goes up mid week.. i'm speculating on exiting the trade.. still calculating how much heat i can take.. sometimes volatility of volatility can way make up for 4 percent loss a month.. and the vix is relatively very low at the moment.. not that it couldn't go lower or stay low for a while.. I'm thinking on the other hand that the size of this trade compared to my account size is probably whats making me so nervous about it.. otherwise i'd wanna be long vol with the vix at 15-16 area.
i can't imagine owning the vixy at higher levels! i can't imagine the loss from like a vix reading of 35 to 20.. the combination of loss of vol and contango.. would lead to wa bango super loss!
i'm thinking otm call backspreads would be a way better call on this ... cause if nothing happens and vol stays low you don't get completely jacked up on roll over loss..
vixy now 28
vixy then 34
equals 6 dollar difference..
vix now 16
vix then 14
equals a 2 dollar difference.
put that together you get an 8 dollar loss in two months..
so thats 4 dollars a month .. of a thirty dollar instriment.. meaning thats 13 plus percent loss a month..
if my basis is 32 first month i'll be at around 28
next month all be between 24 and 25..
so all else being equal .. i will take a huge loss if the vix doesn't spike up to 25 or so in the near term.. selling calls in the vixy could no way neutralize the contango roll over loss! the 34 dollar call options for august is selling for 1.15 cents thats only 3 percent... no way that will neutralize ... i am not seeing how i'm not going to get completely jacked up in this trade.. vol goes up mid week.. i'm speculating on exiting the trade.. still calculating how much heat i can take.. sometimes volatility of volatility can way make up for 4 percent loss a month.. and the vix is relatively very low at the moment.. not that it couldn't go lower or stay low for a while.. I'm thinking on the other hand that the size of this trade compared to my account size is probably whats making me so nervous about it.. otherwise i'd wanna be long vol with the vix at 15-16 area.
i can't imagine owning the vixy at higher levels! i can't imagine the loss from like a vix reading of 35 to 20.. the combination of loss of vol and contango.. would lead to wa bango super loss!
i'm thinking otm call backspreads would be a way better call on this ... cause if nothing happens and vol stays low you don't get completely jacked up on roll over loss..
Quote from cdcaveman:
vixy now 28
vixy then 34
equals 6 dollar difference..
vix now 16
vix then 14
equals a 2 dollar difference.
Your numbers are wrong...
You will have to do MUCH better than this.
VXX and VIXY move together will almost 100% correlation...
Chart them together in PERCENTAGE TERMS and you will see no daylight.
http://finance.yahoo.com/echarts?s=...n;ohlcvalues=0;logscale=off;source=undefined;
Quote from DeeDeeTwo:
Your numbers are wrong...
You will have to do MUCH better than this.
VXX and VIXY move together will almost 100% correlation...
Chart them together in PERCENTAGE TERMS and you will see no daylight.
http://finance.yahoo.com/echarts?s=...n;ohlcvalues=0;logscale=off;source=undefined;
i wasn't talking about the VXX compared to the VIXY i was actually talking about the VIXY compared directly to the VIX index itself... comparing the vxx to the vixy won't tell me much about the roll over loss due to contango.. i hope i didn't write my originally posts wrong.. this is all about tracking error and contango roll costs in the Vix short term futures ETF the VIXY and how much money it loses over time due to Roll over costs
Quote from cdcaveman:
i wasn't talking about the VXX compared to the VIXY i was actually talking about the VIXY compared directly to the VIX index itself... comparing the vxx to the vixy won't tell me much about the roll over loss due to contango.. i hope i didn't write my originally posts wrong.. this is all about tracking error and contango roll costs in the Vix short term futures ETF the VIXY and how much money it loses over time due to Roll over costs
Roll cost is extremely easy to calculate...
Because both VXX and VIXY have identical hardcoded holdings formula...
(VIXY is designed to be an ETF clone of the VXX ETN)....
And it's running at about 10%/month recently.
Roll yield is typically captured by shorting short-term VIX...
While buying medium-term VIX...
Or doing it via ETFs while maintaining an appropriate hedge ratio.
It's not rocket science, but takes some trading experience.
Quote from DeeDeeTwo:
Roll cost is extremely easy to calculate...
Because both VXX and VIXY have identical hardcoded holdings formula...
(VIXY is designed to be an ETF clone of the VXX ETN)....
And it's running at about 10%/month recently.
Roll yield is typically captured by shorting short-term VIX...
While buying medium-term VIX...
Or doing it via ETFs while maintaining an appropriate hedge ratio.
It's not rocket science, but takes some trading experience.
so let me ask you this.. why would you use the ETF differential in the front and back terms rather then the actual futures? and when you utilize a hedge ratio to keep from the front term blowing you up.. what are you using to hedge? I'm fairly new but getting to be fairly well read..
On another note with the vix at 15-16 area.. i wouldn't think to go short on the contango trade at this point.. we get a good sell off early before the fall we could get a good blow out in vol.. i'm wondering if a constant ratio backspread in the front term to a degree to more then make up for if not a profit in the situation where the vix blows up to 40 and the convergence of the front month to the spot goes backwards...
generally what i'm thinking is.. that when vol is farily high exploiting contango would make more sense? at least i would think theoretically.. then on top of that wouldn't it make more sense to be long vol at a vix of 16 and be thinking of the possibility of the volatility going up alot more then the loss in contango? just a thought.. anyway any thoughts help me greatly!