( Email Submissions )
Email 1,
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Please
tell me if I am viewing this trade correctly
26 day
vx future is trading at 12.70
61 day
vx future is trading at 13.70
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so the
"cost to carry" roll is one dollar... to take the trade out 35 days or a dollar
of decay if we go nowhere..
***Correct
but not exact***
my
question for you is .. if the vix in the front month goes from 12.70 to its
historical low of 9
what
does that mean for the SPX.. if 19 percent vol is a one percent move,.. what is
a .09 percent vol mean .. "that is hardly moving per day?"
***It
still means that the future will be around 10 or 11….Maybe it means a 40 to 50
point move in the S&P’s***
how
much of a move up in spx = a move down in vx, and is it linear.. is every point
down = the same level of move up in spx or is this skewed .. meaning one percent
move up equals one percent move down in vx .. then a second percent move up =
.50 move down in vx and so on ..
*** It’s
not linear and it’s approximately 20 points in the/ES to every 1 point in /VX
futures…***
please
help me estimate the level of pain I would be feeling holding the 61 day vx
future (which i just bot) if we are at historic lows in the
VIX
***
My best guess at those levels is 40 to 60 S&P points but nobody really
knows.***
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Email 2
Hello,
I have
a few quick questions from your short term vs long term selling Vol
My take
away was that you have a slightly larger cushion
being caught short Prem if it explodes to the up side, by being father out in
time (duration) OPTIONS ONLY
but my
question for you has to do with the trade I have been doing by selling uvxy or
vxx against a future.
when
you are in this trade and the underlying future + options, it would appear to me
that the above mentioned gamma risk against short time would be muted by the
presence of and underlying, not just short options- is that correct? because the
gamma risk associated with short term duration seems like it would be off set
against the future underlying gain or loss.
here is
what I have been doing..
I bot
one VX future vxq4 at 13.60
and
sold the 29 call in uvxy 5x times against it for $2.86 Credit..July
14
and
after some time and downward movement in the VX I then bot the 27 strike Call
for $2.60 Debit, July 14
***Free
Vertical***
then I
am in this call spread for free .. but I gave up my Theta Decay so then I went
into Aug 14 (more time) and sold the 30 strike call for $3.30
Credit
and
again the same thing happened time has melted away and we have moved lower in
the vx so I bot the 25 strike Call for $3.35 Debit
.05
cents debit for this vertical
and not
wanting to go out any father then I went into to VXX another like product and am
working 10x there against my original future at the Aug 29 calls at $1.50 credit
am I
managing these trades correctly getting into a vertical and rolling out the sold
prem.. or would it be wiser to A) either do them longer term and not touch them?
B) do them short term and let them go and re establish every few weeks milking
every possible theta from the position? or C) the vertical hybrid thing I a have
seemed to find myself in ..
I am
sure there is no direct right answer but speaking in generalities what do you
think ..
thank
you in advance
I cannot discuss the specifics of any individual trade), conceptually, you are pretty much spot on. You have to under-hedge. Part of it is the gamma risk and part is being right directionally. Regardless, looking at your adjustments, I’m not sure that you could have done anything differently. You never could have assumed the depth of the volatility contraction and I really believe that you made the logical ‘tweak’.
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Email 3
Hello
I hope you can help I just have a few volatility related questions I hope
you can help me on.
what I am trying to do is work on the correct ratios here
what I am attempting to do is buy a /VX future
either the VXQ4 (35 days)
or the VXU4 (63) days
and sell one of the ETF (n) vol products with drag against it.
My first question has to do with the future.. both the futures products say
1000 delta once purchased .. but I know the speed of a move is not linear and
will move differently depending on term structure..
but how can I know relative to a ETF product how much delta is actually is
.. meaning
IF I was to sell 5 UVXY or 10 VXX against the future .. how can I determine
the time frames in which they are closer to delta neutrality? if this was a
stock I feel I understand how the greeks would work to determine ratio.. but the
idea of $1000.00 a point in the future vs the equivalent dollar value in the
ETF... seems ok in theory but I think it would have to be tweaked depending on
what time frame and I don't exactly know how to do this because I cant calculate
the time effect on the different contact months for the futures contract its
offsetting.
I am trying to figure out if its better to do them both in the same month
and forget about it, or to do more or less contracts for a shorter time, for
example every week, and reload and repeat, but I feel like I could run into
trouble selling 5 uvxy contracts for week with a longer dated future that might
not move as much to cover it if we move up. I hope you can see what I am asking
here and help me determine something like selling 4 uvxy with one week might be
like 7 with weeks and 10 with 35 days. I can get that portion from the options
greeks If I could just better understand the different effects through the
different month futures.
and now my second question..
I am working under the idea that the Vol ETFs would actually out perform if
we were to get a longer term sustained up move in VOL with its built in rolling
feature (which we haven't ever really seen) but besides looking at the
differences in credit I could bring in selling VXX or UVXY is there any other
determining factor as to why sell one product over the other?
thank you in advance for your time and patience I hope you can translate my
question into something meaning full and help
I look forward to hearing from you
Hello,
Generally, if vol spikes up the product with less time to expiration is
going to respond more than the product with more time. So, you’ll see the VIX
jump the most, the Aug /VX go up less, and the Sep /VX go up the least. So if
you’re looking at selling UVXY or VXX against /VX, I’d look for an expiration
that has the same or a bit longer time than the future. You could sell fewer
contracts in a closer expiration and maybe capture more time decay than doing
more contracts in a further expiration, but figuring out the right ratio of how
much that near month will rally vs your long future is tough to quantify. You
could assume that the /VX basis moves to, say, 2 points under (vs .67 over where
the Aug/Sep basis is right now), and try to estimate how much the VXX or UVXY
options change. It’s an educated guess.
Whether the VXX (and by association the UVXY) outperforms if vol makes a
sustained move higher is tough to say because of the fluctuations in the /VX
basis over the rolling cycle of the VXX, and how vol makes that sustained move.
Whether it moves steadily up every day, or moves up in occasional jumps.
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Email 4
thank you
one more additional question..
the VXX right now is at 27.95 ( basically 28)
If I was to buy the Aug (31) day call vertical
28 strike and sell the 30 strike two dollar wide vertical
theo price is 1.66 - 1.10 aka .56 cents debit (i know the markets are
closed so this might be a hair off.
and then SELL IN UVXY the 2 dollar wide out of the money spread.
uvxy is at $25.38 (.64 cents out of the money)
and I was to sell the 26- 28 call spread for .57 cents credit..
both trades for net net zero. debit plus credit.
is this going to track penny for penny .. is would this position lock in
the slight difference the two verticals difference between where the spread is
vs at the money (one spread five cents away.. one spread 64 cents away?)
it would appear there is a slight difference between the two products when
I type in uvxy-vxx in a chart is this too close to arb together?
again thank you and I am looking forward to tomorrows confirm and send.
Enjoy your night.
***UVXY is going to move twice as fast. Maybe it's a 2:1 play but these are
difficult arbitrage plays for retail traders.....***
sorry
for the multiple emails...I don't want to clog your email box..
I would
imagine the trade could be set up thinking if you are doing both verticals for
the same price... then the faster one would go in the money faster then the
other one would lose.. if you were to buy uvxy and sell
vxx..
or if
done the other way around.. you are wanting the spread to go to zero on one side
(credit faster then the debit side if uvxy is sold)
but it
might be more trouble then its worth.
***Way
more trouble 1:1. It only will work if you skew it to make things
interesting***
Another Traders Approach ( O.V. B.) Thank you for your feed back.
"Can't exactly answer your question because I don't know the answer,
but will offer some ideas:
First - from hedging perspective:
1 - simple delta at any moment can be simply calculated from holdings
- you know how much of each maturity futures ETF has at any time
2 - if you're looking to combine your hedges to a single expiration -
for example hedge your ETF basket with single maturity VX - you net
exposure, and calculate hedge ratios using a model or statistical
correlations.
Second- since you're looking to trade with a view it is very hard to
something like - here's how many VIX futures you need to trade
against your ETF to protect against what I assume to be some market
risk, but still "out perform if we were to get a longer term sustained
up move in VOL with its built in rolling feature" even though you know
that these ETFs are created from the very futures you want to trade
again them.
I think perhaps a better framework may be is to figure out futures
trade in terms of (possible) principal components and express them as
ETFs, ..........."
