You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
VXX - a trending stock
- Thread starter samer1
- Start date
Quote from cdcaveman:
yes yes.. so you see what i'm talking about.. its like a negative interest rate assumption that is completely flux..
So the same problem should also apply to commodities... In case of commodities, you have some commodities in backwardation and contango...
If you look up Hull's option book, I think it does not discuss this point...
However, vol futures behave differently than commodities... since vol by itself is mean reverting.
Quote from TskTsk:
No need for martingaling (which is a very bad idea in the first place) as long as you play limited risk positions, for instance buying puts or just putting in a simple stoploss....I for one do not have particular worries about spikes as I got in short at such a high price, I doubt it's ever going back to those levels ever.
while i agree.. martingaling is not a good idea.. i do think in very specfiic cases its viable.. guys do it all the time in the iron condor world.. rolling out strikes and adding to positions to keep credits.. now say you have a spike in the vix.. the futures go backwards.. vix is say at 35.. rare i know but just lets take this for an example.. at this point there is a positive cost of carry for the vxx because they are buying foward at a discount.. i think the vix is statistically in contango like more then 70 percent of the time.. so.. if you were to sell the vxx upon a large spike with .10 percent of your potiential investment and feed the investment if it goes up a couple of points.. and say if it hits 45 feed it some more.. such that if the vix went to 80 on a crash.. your only down half on the .20 percent you invested of your entire alotment... so now.. vix is at all time record highs.. dump all in and make a run for making alot of money.. hold hold and hold..
how the hell is this more risky then averaging down in single ticker names.. where there is no mean reversion truely going for you in a bankrupcy situation..
Quote from samer1:
So the same problem should also apply to commodities... In case of commodities, you have some commodities in backwardation and contango...
If you look up Hull's option book, I think it does not discuss this point...
However, vol futures behave differently than commodities... since vol by itself is mean reverting.
im reading Hulls book options futures and other derivatives right now actually.. and your right vix futures are different then other commodities.. i'd love to talk to anyone that was making markets in these instruments..
Quote from cdcaveman:
while i agree.. martingaling is not a good idea.. i do think in very specfiic cases its viable.. guys do it all the time in the iron condor world.. rolling out strikes and adding to positions to keep credits.. now say you have a spike in the vix.. the futures go backwards.. vix is say at 35.. rare i know but just lets take this for an example.. at this point there is a positive cost of carry for the vxx because they are buying foward at a discount.. i think the vix is statistically in contango like more then 70 percent of the time.. so.. if you were to sell the vxx upon a large spike with .10 percent of your potiential investment and feed the investment if it goes up a couple of points.. and say if it hits 45 feed it some more.. such that if the vix went to 80 on a crash.. your only down half on the .20 percent you invested of your entire alotment... so now.. vix is at all time record highs.. dump all in and make a run for making alot of money.. hold hold and hold..
how the hell is this more risky then averaging down in single ticker names.. where there is no mean reversion truely going for you in a bankrupcy situation..
rolling iron condors is pretty much just taking a loss in delta 1. many have tried the strategy you mention, including LTCM who thought "it just can't go down anymore" because the mathematical models told them so, so they kept adding....others have tried the same...just cause the vix is at 80 doesn't mean it can't go higher....
but i will agree the VIX contango situation is one of the less risky investments out there, and the mean reversion makes it feasable if you have a large enough bank account and can stand the emotional pain from holding through a spike...in essence its the same as buying say ES futures if the market collapses to 800 or something...we all know inside that it's going up again eventually, because allowing a complete collapse is not socially sustainable and some very powerful groups are aware of this....but it takes a lot of guts and nerves of steel (or balls of steel, whatever, you get the point...) to pull through with it.
Quote from TskTsk:
rolling iron condors is pretty much just taking a loss in delta 1. many have tried the strategy you mention, including LTCM who thought "it just can't go down anymore" because the mathematical models told them so, so they kept adding....others have tried the same...just cause the vix is at 80 doesn't mean it can't go higher....
but i will agree the VIX contango situation is one of the less risky investments out there, and the mean reversion makes it feasable if you have a large enough bank account and can stand the emotional pain from holding through a spike...in essence its the same as buying say ES futures if the market collapses to 800 or something...we all know inside that it's going up again eventually, because allowing a complete collapse is not socially sustainable and some very powerful groups are aware of this....but it takes a lot of guts and nerves of steel (or balls of steel, whatever, you get the point...)
we are totally on the same page.. hence starting positions with extremely small amounts.. this is just all theoretical stuff for me anyway.. but if you could please remind me of this when the vix is spiked up to 80 and the es is 600 so i don't completely wuss out! haha its painful as hell buying in bottoms and selling at tops... it just doesn't intuitively feel right.. thats the hardest part of trading.. but i know you will get alot more bang for your buck buying front month calenders at the pinnacle of a spike then if you were just selling the vxx... but then again that all depends on your risk appetite and how deep your pockets are.. theres always that saying.. don't trade as if its the end of the world.. because that only happens once.. haha
Quote from cdcaveman:
we are totally on the same page.. hence starting positions with extremely small amounts.. this is just all theoretical stuff for me anyway.. but if you could please remind me of this when the vix is spiked up to 80 and the es is 600 so i don't completely wuss out! haha its painful as hell buying in bottoms and selling at tops... it just doesn't intuitively feel right.. thats the hardest part of trading.. but i know you will get alot more bang for your buck buying front month calenders at the pinnacle of a spike then if you were just selling the vxx... but then again that all depends on your risk appetite and how deep your pockets are.. theres always that saying.. don't trade as if its the end of the world.. because that only happens once.. haha
yes i think we agree..as they say, when there is blood on the streets you buy,. only problem is, how much blood is enough....you just cant know
Quote from TskTsk:
rolling iron condors is pretty much just taking a loss in delta 1. many have tried the strategy you mention, including LTCM who thought "it just can't go down anymore" because the mathematical models told them so, so they kept adding....others have tried the same...just cause the vix is at 80 doesn't mean it can't go higher....
but i will agree the VIX contango situation is one of the less risky investments out there, and the mean reversion makes it feasable if you have a large enough bank account and can stand the emotional pain from holding through a spike...in essence its the same as buying say ES futures if the market collapses to 800 or something...we all know inside that it's going up again eventually, because allowing a complete collapse is not socially sustainable and some very powerful groups are aware of this....but it takes a lot of guts and nerves of steel (or balls of steel, whatever, you get the point...) to pull through with it.
Just curious whats your basis.... What is the cost to borrow the shares when shorting
Quote from TskTsk:
...many have tried the strategy you mention, including LTCM who thought "it just can't go down anymore" because the mathematical models told them so, so they kept adding....others have tried the same...just cause the vix is at 80 doesn't mean it can't go higher....
The key is always diversification. Any narrow strategy will bite you eventually.
For virtually any stats arb, reversion, or market making operation...
Profits double, triple or more in volatility spikes...
Because of wider spreads, higher volume, and general panic.
So Vol hedges are a good inverse complement to all of the above.
Quote from DeeDeeTwo:
The key is always diversification. Any narrow strategy will bite you eventually.
For virtually any stats arb, reversion, or market making operation...
Profits double, triple or more in volatility spikes...
Because of wider spreads, higher volume, and general panic.
So Vol hedges are a good inverse complement to all of the above.
how do you "vol hedge" buying wings?