Why doesn't everybody just short VXX?

[rallymode]

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

Just a simple $risk hedge. No adjustments. I like to think that my magic lies in picking the right price/duration to sell and not in any tinkering w adjustments.

 

[rallymode]

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.

Ironically, this is precisely when you should be entering not already be in it from some random price scrambling to hedge

The thing is that you’re never gonna build a “perfect” position. You are just swapping risk. My preferred hedge to short vol is long vol then deltas. In my experience ops or any random long premium hedge just bleeds me too much in the good times and never seem to hedge enough when vol blows up.

 

[guru]

I think that everyone who wants to short VXX is doing this. Though shorting VXX will not profit as much as shorting UVXY or especially TVIX, so then someone may ask why not everyone shorts TVIX.
Last year people asked why doesn’t everybody buy XIV and SVXY.
While I’m sure someone else asks why doesn’t everybody just buy SPY or AMZN, etc. or why doesn’t everyone just sell ice cream door-to-door.

 

[sle]

Just a simple $risk hedge. No adjustments. I like to think that my magic lies in picking the right price/duration to sell and not in any tinkering w adjustments.

I meant to ask how you determine the amount of Spooz delta you carry for an given futures position? Like I have a "smart" VIX model that tells me that a var swap would have delta X, convexity adjustment would have a delta -Y etc, but I suspect it's an overkill.

 

[Chewy]

Why doesn't everybody just short VXX?

the answer is obious. for every seller there must be a buyer. so there always is 50% buyers and 50% sellers. no way to change that.

what did I win for getting the right answer?

silly question silly answer. hahaha.

 

[rallymode]

I meant to ask how you determine the amount of Spooz delta you carry for an given futures position? Like I have a "smart" VIX model that tells me that a var swap would have delta X, convexity adjustment would have a delta -Y etc, but I suspect it's an overkill.

What do I get in return for sharing some of my VIX magic?

 

[sle]

What do I get in return for sharing some of my VIX magic?

I'll share some of mine, obviously

 

[Timetwister]

My preferred hedge to short vol is long vol then deltas.

What does that mean in practice, could you give me an example? How do you hedge a VXX short by being long volatility if it isn’t by buying VXX calls? Do you buy VIX futures (that would be absurd, it would be better to just short futures directy instead of VXX)?

 

[rallymode]

What does that mean in practice, could you give me an example? How do you hedge a VXX short by being long volatility if it isn’t by buying VXX calls? Do you buy VIX futures (that would be absurd, it would be better to just short futures directy instead of VXX)?

Not absurd at all. You can structure a vxx/vx pair and lean your vol exposure whichever way you wish. But again, unless you are deploying the long vol hedge with some perceived edge built in it’s better to just swim naked at a reduced size, IMO.

Out of curiousity, why are you trading vxx if you have access to vx futures?

 

[rallymode]

I meant to ask how you determine the amount of Spooz delta you carry for an given futures position? Like I have a "smart" VIX model that tells me that a var swap would have delta X, convexity adjustment would have a delta -Y etc, but I suspect it's an overkill.

The “smart” VIX model that I have gives me the expected forward vol at certain levels on the SP - 1SD , 2SDs, etc. ES to VX ratio is then determined by bias, mostly neutral to slightly short vol. Delta hedging the convexity does seem like an overkill. I like to keep things simple and “linear” and then lean on the assumption that deltas lead vol.