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Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2011-12-02 13:18

What kind of analysis do you people do for VIX futures and options? Does anyone actively trade VXX options? Do you guys run any sort of systematic VIX-futures based strategies?

I am tinkering a little bit with FI-style term structuure trades in VIX futures, based on a few smoothing/PCA methods and also do some relative value in VIX options vs SPX options.


I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

filthy


Total Posts: 1259
Joined: Jun 2004
 
Posted: 2011-12-02 17:07
i do all of that stuff. the "models" i use are completely statistical and phenomenological. it is tempting to think you can come up with a model that completely and consistently prices all the sp/vix options and futures but i've seen a lot of time wasted doing this.

For example, vix options trade very old school. it is like an index would trade in the early 90s. no one uses anything fancy at all.

"Game's the same, just got more fierce"

chiral3
Founding Member

Total Posts: 5063
Joined: Mar 2004
 
Posted: 2011-12-02 17:30
Let's talk about VIX, baby
Let's talk about S - N - P
Let's talk about all futures
And the options, on volatility
Let's talk about VIX

Sorry, couldn't help it after the thread title.

Nonius is Satoshi Nakamoto. 物の哀れ

Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2011-12-02 18:44

I do pretty much the same as you - most of my models are tactical/statistical.

out for curiosity, do you keep a data-set of constant-maturity VIX futures adjusted for all of the phenoms, or just use something similar to generic futures on BBG?

also, when you are trading T/S flies (e.g trade Dec/Jan/Mar), how do you figure out the ratios?


I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

ctd


Total Posts: 60
Joined: Jan 2008
 
Posted: 2011-12-02 20:54
chiral...+1

cordura21


Total Posts: 234
Joined: Aug 2009
 
Posted: 2011-12-14 18:43
For those of you who are in the knowledge: who are typical users of VIX derivatives, specially futures... and specially buyers? There are a couple of papers (and even the CBOE site) pondering their application as a hedge for stocks.

But the contango - specially on the first month - is so big that it ends up being a huge cost. I tried to search about who the users are, but didn't find anything conclusive. As a constant user you'll be spending a lot.

Cheers, Cord


Vespertilio homo est cientificus

nodoodahs


Total Posts: 227
Joined: Sep 2007
 
Posted: 2011-12-14 19:46

I wonder if plain old 30YT isn't a better hedge for SPX than VIX would be.

I mean "better" as in more effective in the PnL, not "better" as in more attractive as a strategy sold by an asset manager to pull in AUM, of course.  There, the more complicated, the better ...


I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

cordura21


Total Posts: 234
Joined: Aug 2009
 
Posted: 2011-12-14 20:39
My main point is that, as a volatility strategy and given the bad track record of the volatility ETFs as a hedge, the first conclusion is that one good strategy is to sell volatility (and become the next bank of volatility for everyone to laugh at you)

Periods of crisis will break you, so I guess you'll be a seller with some discretion, as some people say in this thread using some backward looking risk intervals. But then again, who is the buyer of this stuff?


Vespertilio homo est cientificus

granchio


Total Posts: 1540
Joined: Apr 2004
 
Posted: 2011-12-14 22:42
pardon my naivety... but I really struggle when people talk about VIX futures as hedge for the SPX (or read "stocks" for SPX).
If one wants to hedge a long SPX position, why not buy puts on the SPX? or sell futures on the SPX? or just close your SPX position if ones is not happy with it any more?
Why play with a different asset, whose future covariance with original asset is going to be hard to estimate and nearly certainly non constant, and so risk loosing money on both positions?

Overall, it reminds me of similar kind of "texas hedging" which I have seen happen or heard about (e.g. forex traders using SPX futures to "hedge" their risk...) - often resulting in, shall we say, less than happy outcomes.

"Deserve got nothing to do with it" - Clint

goldorak


Total Posts: 1048
Joined: Nov 2004
 
Posted: 2011-12-15 07:26
'Volatility is an asset class' the salesman will tell you Confused

If you are not living on the edge you are taking up too much space.

granchio


Total Posts: 1540
Joined: Apr 2004
 
Posted: 2011-12-15 12:06
I don't doubt that. In fact I very much like that class, including the VIX.
What I doubt is the reasoning behind using an outright VIX position as a hedge versus an outright SPX position.

"Deserve got nothing to do with it" - Clint

goldorak


Total Posts: 1048
Joined: Nov 2004
 
Posted: 2011-12-15 14:09
Because the salesman told you.

Because the consultant who read the salesman docs told you.

Just pick one.

If you are not living on the edge you are taking up too much space.

Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2011-12-15 17:47

<< If one wants to hedge a long SPX position, why not buy puts on the SPX? >>

Actually, if you look at the historical relationship of VIX to SPX, it is pretty clear why you would want to own calls on VIX rather then puts on SPX. As S&P goes up, VIX level resets to a new "spot reference" while your puts are left in the dust way down below. Of course, you pay for this behaviour in the form of roll down, but that is no different then decay on the puts.


I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

granchio


Total Posts: 1540
Joined: Apr 2004
 
Posted: 2011-12-15 18:10
@strange:
the problem with historical relationships is that sometime they break down...

while if you are a long only investor,say SPX index tracker to simplify,if you own a put at say 1100 strike you know the floor value of your portfolio (1100 - premium) ...
you don't really think in term of time value, but in term of premium.

@goldorak:
i get what you mean... and alas you are right, often one doesn't choose the simplest and cheapest option, but instead is swayed by marketing-speak.
(i nearly bought an Ipad today in fact ;)

"Deserve got nothing to do with it" - Clint

Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2011-12-15 18:30

<<you don't really think in term of time value, but in term of premium>>

Right, but it's just as easy to think of your VIX futures (for example) at X premium over the spot (or at XX premium over historical vix lows or something) as a premium you are paying. The reality is that most long-term investors don't have S&P in their book either and they are already looking at proxy hedges against general market meltdown.

PS. In any case, "your mileage may vary" but dismissing VIX products completely is not the right thing either.


I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

granchio


Total Posts: 1540
Joined: Apr 2004
 
Posted: 2011-12-15 23:45
<>

Au contraire... I think I said I like volatility trading etc: I also like VIX.
My criticism is on how it get used sometime.

"Deserve got nothing to do with it" - Clint

functor


Total Posts: 74
Joined: May 2007
 
Posted: 2011-12-16 03:10
Actually, if you look at the historical relationship of VIX to SPX, it is pretty clear why you would want to own calls on VIX rather then puts on SPX.

Since you can't buy the VIX directly (but rather the futures instead) -- the VIX options are effectively options on the VIX futures, not on the VIX itself. VIX futures do not move nearly as much as the spot, especially when you are not a few days away from expiry. Indeed, many times there is a large spike in VIX and the futures go down.

Also, VIX futures are usually in contango, so you bleed extra holding VIX calls.

Good people think in terms of categories and groups -- Confucius

Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2011-12-16 03:21

VIX futures and the strip itself moving in opposite directions not very common at all. It might happen in the context of a single day (the curve inverts/steepens so much that forward variance goes down/up), but overall the futures follow the square root rule pretty well.

The upward sloping term structure does contribute to the loss in value, but it is offset by the increase in the VIX futures volatility as you are rolling towards the spot. And the convexity adjustment decay is considerable, too.




I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

algotr8der


Total Posts: 5
Joined: Mar 2011
 
Posted: 2011-12-29 02:04
If you don't mind me asking what kind of phenomenological model as it relates to the VIX/VXX/SPX options.

I'm just now beginning to trade options but so far implementing strategies in filthy's book and Jeff Augen's various books on options.... taking some time to code up the tools to help with the analysis.

Appreciate the discussion.

onlyvix


Total Posts: 10
Joined: Apr 2011
 
Posted: 2011-12-29 15:42
Barclays quants discuss such models based on properties of VIX, like VIX ATM IV closely tracks SPX skew, and VIX skew is opposite to SPX Skew and scales by square root of time to maturity. The title is "Hedging With VIX Instruments" and you can download it here http://onlyvix.blogspot.com/p/vix-publications_18.html

Strange


Total Posts: 1450
Joined: Jun 2004
 
Posted: 2011-12-29 18:48
Interesting. I've seen this strat note when it first came out and quickly came to a conclusion that the model proposed is not very useful, even though it achieves a good fit. But that's a pretty common story with a lot of models coming out of strat groups.

algotr8der, let me reach out to you via email, but the from my perspective the general goal of the tactical models is to understand various risk premiums built into the VIX term structure and volatility surface, as well as try to understand the relationships with risk premiums built into S&P vol surface. Once you have the models to figure that out, you try to trade one risk premium against another.


I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

algotr8der


Total Posts: 5
Joined: Mar 2011
 
Posted: 2011-12-29 20:22
@onlyvix and @Strange - thank you both for the response and information. Please do reach out to me via email at your convenience - I greatly appreciate that. thx.

Rashomon


Total Posts: 186
Joined: Mar 2011
 
Posted: 2012-02-03 11:46
granchio, this paper by Keith Black might have swayed people. "How the VIX Ate My Kurtosis" in the Journal of Trading.

"My hands are small, I know, but they're not yours, they are my own. And they're, not yours, they are my own." ~ Jewel

jgills


Total Posts: 15
Joined: Aug 2012
 
Posted: 2012-10-04 18:03

the documents at that link don't seem to be working anymore, does anyone have access to any of those PDF's that they are willing to send over?


Soon2Bgreat


Total Posts: 16
Joined: Jun 2007
 
Posted: 2012-10-04 18:42

jgills:  "the documents at that link don't seem to be working anymore, does anyone have access to any of those PDF's that they are willing to send over?"

They seem to work for me and I've got most downloaded - I can send them to you.  LMK where you want me to send it.

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