Why doesn't everybody just short VXX?

[trickstertarik]

been shorting tvix for the last month and making a killing
but very careful to keep very tight stops and not get blown up

 

[rallymode]

That is like picking up pennies in front of a steam roller.

That's a silly generalization. Not all short premia strategies are made equal. In 2017 VXX went from 100 to 25. Not exactly pennies. For a passive investor there is a ton of convergence in the vix futures that can be "collected". It's much better if you are active and can hedge the tails effectively.

 

[maler]

Price the synthetic short.

Great suggestion for monitoring hard to borrow names.
I keep it simple with delta 1 bets on liquid names lately, so I don't look at options.

 

[SPYAlgoTrader]

you are basically acting as an insurance provider by selling volatility - be prepared for steep losses every now and then - profitable long term

 

[destriero]

you are basically acting as an insurance provider by selling volatility - be prepared for steep losses every now and then - profitable long term

Hold on... yeah, I got the same answer. Thanks, Capt Obvious.

 

[JSOP]

JSOP said:
That is like picking up pennies in front of a steam roller.

That's a silly generalization. Not all short premia strategies are made equal. In 2017 VXX went from 100 to 25. Not exactly pennies. For a passive investor there is a ton of convergence in the vix futures that can be "collected". It's much better if you are active and can hedge the tails effectively.

I never said that.

Plenty of reasons why people can't short VXX or any other VIX instruments:

1. Forbidden by many stupid brokers who still believe that it's less risky to buy VXX instead of shorting it

2. Extremely elevated margin requirements on VXX

3. No available shares to borrow to short VXX. Everybody like you have figured out that shorting VXX is the way so everybody wants to short it but there is only so many shares available for shorting so there is no shares available anymore.

4. Not allowed to short VXX for their retirement portfolios and whatnot

All reasons stemming from the market's refusal or inability to learn about VIX products and thus ignorance of VIX products

It's @comagnum who said this.

That is like picking up pennies in front of a steam roller.

View attachment 191918

 

[Timetwister]

That's a silly generalization. Not all short premia strategies are made equal. In 2017 VXX went from 100 to 25. Not exactly pennies. For a passive investor there is a ton of convergence in the vix futures that can be "collected". It's much better if you are active and can hedge the tails effectively.

What would be an effective way to hedge a short VXX position? I have been studying this (and UVXY) for years but I can’t find any strategy with them that would give decent returns while being hedged. Calls for both ETF are always very expensive. Puts too.

 

[rallymode]

What would be an effective way to hedge a short VXX position? I have been studying this (and UVXY) for years but I can’t find any strategy with them that would give decent returns while being hedged. Calls for both ETF are always very expensive. Puts too.

I find hard deltas to be the best hedge. I often(not so much lately) run a short ES short VX futures pair if i see some decent convergence potential.

 

[sle]

I find hard deltas to be the best hedge. I often(not so much lately) run a short ES short VX futures pair if i see some decent convergence potential.

Out of curiosity, do you use proper var-swap (with appropriate adjustments) based deltas or some form of ad hoc beta?

 

[Timetwister]

I find hard deltas to be the best hedge. I often(not so much lately) run a short ES short VX futures pair if i see some decent convergence potential.

Excuse my ignorance, but what do you mean with “hard deltas”?

The problem of using short ES as a hedge is that the futures “beta” keeps changing, and in some cases even becomes positively correlated to VIX futures. I try to find something safer, like simply VXX calls when shorting that ETF or just buying puts directly.