Ron: As I demonstrated in the very article on which you're commenting, the allocation algorithm we developed overcomes precisely this issue. Per the claim that there are "much better ways to hedge," I analyzed conventional hedging methods in a prior article, and found all of them wanting: www.condoroptions.com/.../
Commenters here who prefer VXZ may not appreciate the fact that VXZ does not move nearly as much during market declines, i.e. it doesn't incur such a significant negative roll yield, but doesn't offset price declines as well, either.
When considering a portfolio-specific set of hedges instead of a one-size-fits-all equity index approach, I think the most important question is whether the added cost of more specific hedges is worth it, given the very high correlation among equities during any crisis. As far as I can tell, having ETF- or stock-specific hedges doesn't provide any meaningful benefit vs. an equity index hedge during a crisis. Even many commodities became correlated to stocks in the fall of 2008.
In my testing, the use of collars or other options-based strategies imposed costs (as well as strike dependence) that volatility-based products like VIX futures are able to avoid. I discuss this in part two of this post: www.condoroptions.com/.../
Give me a break. I was one of the earliest critics of VXX when it was announced, and I still don't think it's suitable for people who refuse to read the prospectus. I also concluded this post by saying: "I strongly advise against making a large, fixed allocation to VXX..."
And for the record, no, I don't receive any such compensation.
If you reread your original comment, you'll see that you said XXV was a good medium-term bullish play. I'll reiterate the point that if you want to be bullish on stock prices, you should probably just be bullish on stock prices. I'm all for shorting volatility, but XXV isn't an optimal way to do so.
That's a separate claim from the VXX/VXZ issue. You keep focusing on the relative rates of decay, which is all fine. But as I've said: 1) VXZ won't provide anything like the same hedge ratio in the case of a market crash, and 2) the VXH allocation strategy already overcomes a significant portion of the VXX negative roll yield.
Consider the last sentence of my post: "...even though I strongly advise against making a large, fixed allocation to VXX..."
Whitehawk, please note that spot VIX is not a tradeable product, nor is it even conceivably a tradeable product; it is just a statistic. The relevant comparison therefore is not VXX versus spot VIX - the relevant comparison is VXX versus VIX futures of similar duration, and that is precisely what I have compared.
VXX is not "broken" in any way - its features were plainly disclosed at the time of its launch, and it has performed exactly as expected. The "broken" element here is more likely that segment of the public that refuses to read prospectuses and disclosure documents before trading a new product.
VXZ is undesirable insofar as it provides less protection in the case of short-term volatility spikes due to sudden market declines. And given that our VXH allocation algorithm already significantly reduces the effect of the negative roll yield, moving much further out in the futures curve to VXZ provides little relative advantage in terms of ongoing cost.
XXV vs. SSO strikes me as an apples-to-oranges comparison. They do extremely different things, and I wouldn't use either for long-term bullish directional trades. For a long-term bullish directional position on the S&P 500, what's wrong with SPY?
CME Group Making Gold Options More Tradeable [View article]
No, this would not make gold options "even more volatile." Historical volatility is a function of changes in the price of an asset. Implied volatility is a function of expectations about future price changes. Neither is a function of the number of strike prices available for trading on an exchange.
You probably suspect banks are "smugly laughing up their sleeves over this change" because you are a conspiracy theorist and/or because you have misunderstood fundamental aspects of the options market.
I fail to see how buying gold would "end" whatever it is that is "terribly wrong in our country."
On Oct 02 12:53 PM The Recusant wrote:
> Would not this make gold options even more volatile? Why do I suspect > banks are smugly laughing up their sleeves over this change? > > There is something terribly wrong in our country. End it...buy gold.
Weekly Volatility Tracker: All That Glitters Is Volatile [View article]
Given how new those products are, I think it would be a bit hasty to draw such sweeping conclusions at this point. I don't trade VXX or VXZ since I have access to the CBOE volatility futures. But I disagree with your claim - evidence so far suggests that VXX does track its target range quite well.
Remember that the "real VIX" (if by that you mean the spot VIX) is just a statistic and is not directly tradable.
Weekly Volatility Tracker: Implied Correlation as a Reflation Proxy [View article]
For annualized realized volatility: calculate the standard deviation of log returns over the period required, multiplied by the square root of 252. This can be done easily in a spreadsheet.
Weekly Volatility Tracker: Implosion in S&P 500 Volatility [View article]
Thanks, Alex.
VIX tracks 30 (calendar) day implied volatility, and can be lagged and compared to the 21 (trading) day realized vol. There isn't a 60-day version; the 90-day implied index, VXV, is certainly worth watching, but I haven't added it to chart #5 since it might make things a bit too crowded. The ratio of VXV and VIX is tracked in chart #8, what I'm calling the "VIX Premium Ratio."
conceptwizard: By "that VIX level" are you referring to the spot VIX, or VIX futures? Of course spot VIX can change quickly, and I don't think anything in the post contradicts that fact. Long-dated VIX futures tend to change slowly.
On Jul 30 08:43 PM conceptwizard wrote:
> I'm not on board with this one. That Vix level can change drastically > overnight with a bad breeze and will in my opinion.
So you think put options are just as "exotic" as CDS, CDOs, etc.? Sorry, that's just a bizarre view. Options have been traded on the CBOE since 1973; CDS didn't even exist until the 1990s, and the CDS market didn't blossom until around 2000. If you're familiar with either category - vanilla exchange-traded options or structured finance - it's apparent that there's nothing exotic, professional, or unusual about calls and puts when compared to bespoke derivatives and products that institutions trade with themselves.
I like how you bring in ominous legal jargon there at the end and tie things up with a nice ad hominem attack. Classy.
Also, the quote from Brett Steenbarger didn't get formatted properly when transferred from the blog: his quote ends with "...over more speculative alternatives."
The Discreet Charm of the VXX ETN [View article]
www.condoroptions.com/.../
Commenters here who prefer VXZ may not appreciate the fact that VXZ does not move nearly as much during market declines, i.e. it doesn't incur such a significant negative roll yield, but doesn't offset price declines as well, either.
The Discreet Charm of the VXX ETN [View article]
In my testing, the use of collars or other options-based strategies imposed costs (as well as strike dependence) that volatility-based products like VIX futures are able to avoid. I discuss this in part two of this post:
www.condoroptions.com/.../
The Discreet Charm of the VXX ETN [View article]
And for the record, no, I don't receive any such compensation.
The Discreet Charm of the VXX ETN [View article]
That's a separate claim from the VXX/VXZ issue. You keep focusing on the relative rates of decay, which is all fine. But as I've said: 1) VXZ won't provide anything like the same hedge ratio in the case of a market crash, and 2) the VXH allocation strategy already overcomes a significant portion of the VXX negative roll yield.
Consider the last sentence of my post: "...even though I strongly advise against making a large, fixed allocation to VXX..."
The Discreet Charm of the VXX ETN [View article]
VXX is not "broken" in any way - its features were plainly disclosed at the time of its launch, and it has performed exactly as expected. The "broken" element here is more likely that segment of the public that refuses to read prospectuses and disclosure documents before trading a new product.
The Discreet Charm of the VXX ETN [View article]
XXV vs. SSO strikes me as an apples-to-oranges comparison. They do extremely different things, and I wouldn't use either for long-term bullish directional trades. For a long-term bullish directional position on the S&P 500, what's wrong with SPY?
Options: How to Be Risk-Averse [View article]
Thanks. I don't really have any control over this or any idea what might be wrong - this seems like something for the SA staff to sort out.
In any event, I always suggest people use Firefox, Safari, Chrome, or homemade papyrus before resorting to Internet Explorer.
CME Group Making Gold Options More Tradeable [View article]
You probably suspect banks are "smugly laughing up their sleeves over this change" because you are a conspiracy theorist and/or because you have misunderstood fundamental aspects of the options market.
I fail to see how buying gold would "end" whatever it is that is "terribly wrong in our country."
On Oct 02 12:53 PM The Recusant wrote:
> Would not this make gold options even more volatile? Why do I suspect
> banks are smugly laughing up their sleeves over this change?
>
> There is something terribly wrong in our country. End it...buy gold.
Weekly Volatility Tracker: All That Glitters Is Volatile [View article]
Remember that the "real VIX" (if by that you mean the spot VIX) is just a statistic and is not directly tradable.
Weekly Volatility Tracker: Implied Correlation as a Reflation Proxy [View article]
Weekly Volatility Tracker: Implosion in S&P 500 Volatility [View article]
VIX tracks 30 (calendar) day implied volatility, and can be lagged and compared to the 21 (trading) day realized vol. There isn't a 60-day version; the 90-day implied index, VXV, is certainly worth watching, but I haven't added it to chart #5 since it might make things a bit too crowded. The ratio of VXV and VIX is tracked in chart #8, what I'm calling the "VIX Premium Ratio."
Why Do VIX Futures Remain High? [View article]
On Jul 30 08:43 PM conceptwizard wrote:
> I'm not on board with this one. That Vix level can change drastically
> overnight with a bad breeze and will in my opinion.
Iron Condors and Vertical Skew [View instapost]
Bloomberg's 'So-Called' Financial Lexicon [View article]
I like how you bring in ominous legal jargon there at the end and tie things up with a nice ad hominem attack. Classy.
Bond Market Leadership [View article]