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Martin Vlcek  

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  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    Thanks for the comment. From the reactions I see this market is really stressed out. I understand it, many people now have overall portfolio losses unheard of in the pat 7 years.

    TZA and SPXL, good ideas. I am using long FXE (spikes when markets, especially European markets fall as Euro carry trades are temporarily liquidated). I stopped using TLT as a hedge, as I find it too unpredictable. The same goes for GLD in my opinion. I am still using QQQ though. Lots of expensive growth stocks that will fall hard if the rout continues. QQQ was down nicely even though most of my individual Nasdaq stocks were up yesterday. And QQQ also partly, imprecisely hedges the shorting of the VIX although not under all conditions as we already discussed.

    Congrats on your returns and keep them coming! Nassim Taleb is up big time now as well.
    Sep 1, 2015. 07:42 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    I welcome comments. But please at least read the entire article if you feel the need to comment in a manner that is totally misleading and insulting. At least read the first three paragraphs and then the conclusion labeled "Investment implications". Even if you've just read until the first bullet point below the title, you would have know that I propose entering a position AFTER the VIX recedes back below 30. You've missed all the important parts of the strategy, which is that this is NOT a single trade, that it is a strategy with roughly 10 to 15 signals in the past 30 years, and that each trade should be held for 6 months. This is VERY different from writing an article about "short VIX because it is higher than yesterday".

    Please no NOT put me in the bag with the other writers who wrote such articles. If you want to complain about volatility trade losses, please complain under the articles of the authors who now have 50% paper losses on their calls. This is my FIRST recommendation to short volatility. I was a BUYER of volatility in my personal real account when others were already recommending shorting volatility.
    Sep 1, 2015. 07:33 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    most of my SVXY position is in far OTM leaps call spreads, with the upper strikes at $120, $100, and some at $50. So the average upside is up until SXVY is at $90. That is almost a double on the trade, and a real double if you include the time value decay. So the sold puts @$50 o Monday were just a small part of the position.
    Sep 1, 2015. 03:50 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    My first VIX article came out on a day with SVXY below 50. The price was driven up by algos or central banks to $52.5 in the last ten minutes of the trading day. I am not one of those who wrote VIX articles when VIX was 12, or are sitting on 50% paper losses on VIX ETF trades. Please don't put me into the same bag with them and judge my strategy as a whole, not a single trade, and not after two days in a trade.

    And most importantly, I am advocating a long-term strategy, not a single trade (bet). The trade timeframe is six months, not two days, and there were only about 10 to 15 buy signals for this strategy in the past three decades. This is a strategy, not a single trade.
    Sep 1, 2015. 03:34 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]
    Jean Fonteneau,

    This is a six months trade, not a momo daytrade. I am not a daytrader and advice against it. I see this board is becoming full of momo traders who have a crystal ball and know for sure what will happen this time.

    Judging from your three SA articles, you have a clear bearish bias right now. Nothing wrong with that but it gives you a clear bias. My proposal in the article is to be inbiased and trade VIX as a long-term strategy. That this is not a single trade but a trading strategy spanning three decades where you simply take very occasion when the signal is triggered and wait six months to get a result, averaging all the results.

    I hope you know that even if after six months, this specific occasion ends up making tons of money or losing tons of it, it tells you absolutely nothing about whether the trading system as a whole works or not, whether in the long run it is profitable or not.
    Sep 1, 2015. 03:26 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    "VIX will spike again toward 50-60" I love people who have a crystal ball and can predict the future with certainty. You must be a billionaire by now. Why even bother with us mere mortals here on SeekingAlpha?

    I understand trend. I just choose to trade different strategies, long-term fundamental value, and contrarian which are very often counter-trend, until they aren't. Both strategies can work, even at the same time, depending on your specific setup, trade management, stop losses, profit targets, risk/reward, etc.

    Trend-following strategies, aka buy blindly momo stocks regardless of fundamentals because their price has crossed some moving average or other sentiment indicators, work until they don't. I don't believe anyone can predict the future but if I had to make a bet right now, I would say that trend followers will get whipsawed very hard this year and the next. Their strategies will have huge drawdowns and their psychology will be tested very hard. Most of them will bail out on their strategies right before they start working again.
    Sep 1, 2015. 03:16 AM | 1 Like Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    One thing I woud object is that whether SVXY outperforms UVXY (in the magnitude of the move in the opposite direction) depends on the volatility of the SVXY or UVXY daily moves.

    The market can finish on the same spot in three months from now but the SVXY or UVXY will outperform depending on the volatility of the market moves during that time.

    If the market trades sideways, but with very small moves, essentially staying flat and very calm day to day, SVXY could outperform UVXY due to the decay being path-dependent, depending on the average magnitude of the moves. If, on the other hand, the market is again flat, but makes large day to day swings to get there, SVXY could underperform and UVXY's move could be larger, depending how the VIX futures move during the time and the contango/backwardation. So there are many moving parts.

    If the market falls further, but in a very calm non-volatile fashion (unlikely but possible if the fall is "managed" by the central banks for example), SVXY could outperform UVXY.
    Aug 30, 2015. 01:11 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]
    Thanks, this answers my question of what signal you use. Just the return of contango and at least a mildly rising market, or do you use some additional parameters in the signal? Do you scale in or just take a one or zero position at the first signal?
    Aug 30, 2015. 01:01 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    Thant you for your very objective assessment That's what makes a good investor. I appreciate your time. I am sorry for anybody's losses from articles made at much lower VIX by other authors. The anger and complaints by many users convinces me that there are many new inexperienced investors in this market who don't use enough true diversification outside of stocks. It advice them again to be very careful now. It is the most dangerous time in the markets in the past ten years apart rom 2008/2009.

    The system I propose takes a trade only after the VIX has fallen below 30 from above 30, not when the VIX breaches 30 from below for the first time. So it at least waits for a clear first pullback in VIX to below 30. But I am not waiting for backwardation to turn into contango. I agree waiting for contango to return is far safer. I don't know if I has better risk/reward because you are also losing lots of upside in each trade taken. You have to hold until the VIX is lower. I don't know if the higher probability of a successful trade makes up for that. Did anyone run any backtesting on this?

    What strategy do you use for trading volatility? Are you just waiting for the return of contango?
    Aug 30, 2015. 01:00 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    Thank you for the reply. But even if you can create infinite contracts, someone still has to take each side of them. The VIX futures price rises regardless of the unlimited potential to create contracts. When everybody (90%) is short, when the situation changes, everybody wants to be long to cut their losses and close the positions, plus there is new demand for protection, creating a temporary supply/demand imbalance at the low price of VIX futures, so the future rise in the short run. No matter how many contracts you create, almost nobody is willing to sell them at the previous low price because expectations for near-future volatility have risen sharply, as has demend for short-term stock downside protection. Certainly the HFT and trend following algos that probably got a signal to get out of short VIX positions and get long didn't want to take long positions, so lots of liquidity disappeared. So the price effects are the same regardless of how many contract you can create and whether you call it a short squeeze or not. The Monday was similar o 1987 flash crash in my opinion. Extreme sudden demand for downside protection, everybody at the same time, at any price.

    Also, stocks and indexes nowadays have derivatives as well. Stock and index derivatives nowadays can probably created in infinite quantities regardless of the number of the underlying stock as well. Yet we still call the situation a shortsqueeze even if technically it may not be the case any more.

    It's the sentiment that was 90% bearish on volatility. That's what was extreme and very favorable for a volatility increase. That created a good starting point to turn the markets the other way and start raising volatility (the price of SPX stock options). Not the physical number of contracts long or short. That's what I meant. I apologize for not being very clear in the article. The same is happening in short oil trades, such USO. Do we call it a short squeeze or not? The price effect is the same regardless of what we call it, we get a sharp reversal as sentiment changes and trend following stop losses are tripped.

    Kudos to your volatility study. So what do you use as a signal? Some type of a combination of the cross of the VXST under VIX plus when they both cross under some moving average of the VIX futures?
    Aug 30, 2015. 12:41 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    Thanks a lot for your feedback. I am starting to understand where the negativity comes from. I apologize for not being clear in the article on several places, and not explaining how exactly I trade these beasts. SA sometimes rejects articles that have too much options trades in them, so I am trained not to disclose much about options. But here is the fact:

    I was short SVXY since about a month ago when VIX fell to 12 by buying many OTM puts (mostly Jan 2016 and Jan 2017 strike of $25, $30 and some $40) going into the fall. I still have them but they are not showing on the trades from Monday because I've owned them for almost a month. So what I did as SVXY fell towards 50 is I simply added to the position by selling puts. This creates put spreads, some of which have the sold (higher) position at $50, some at 90 and even 120 (Jan 2017 LEAPS puts, so average about 80). So my real downside risk is very limited and the upside is high. The position is one of the safest ways to take part in the potential SVXY rise and not miss the opportunity. My breakeven is around $35-$40. So over time, I will not have almost any downside risk until SVXY hits $40. And then the risk will be very small, helped by the sold LEAPS puts' time value which ironically trade at high volatility as well, thanks to the spike. Overall, the time premium on sold puts is much higher than on the puts I bought. So I am also a net seller of options time premium here. This is intended to further decrease the real downside risk over time.

    I trade DUST and NUGT very successfully as well using options spreads. SVXY and the shorting of JNUG, JDST pairs have become some of my most successful investments over the years.
    Aug 30, 2015. 06:39 AM | Likes Like |Link to Comment
  • United Microelectronics Is Undervalued - It's A Good Time To Start Averaging In [View article]

    Thank you for commenting. Glad to hear you have a zero cost basis here. They don't have the best relations with TSMC, according to rumors, so that's why TSMC probably hasn't acquired them yet, and probably won't. But they will try to grow, in my opinion, perhaps by trying to merge with someone smaller to grow at least a bit.
    Aug 30, 2015. 06:29 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]
    No it doesn't and that's not what I meant at all. Explanation below.
    Aug 29, 2015. 11:48 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    That's not the logic I meant. I simply meant to use the 90% short position as an extreme sentiment indicator, pointing to a risk of short-term unwind of the trade. The HFT's and big traders can move markets any way they want, especially for a short time period. Consider the common case of short stops tripping. I believe the Monday crash in stocks was a lot about temporarily removing liquidity, tripping these short stocks to rake easy profits.

    By the same logic, if an ETF is 90% shorted, that tells you about how almost all market participants are positioned. That motivates the big players to increase volatility for a short time, to unwind the trade by perhaps tripping the stops on the ETFs. Just widen the bid/asks on 500 largest stocks, move them down and the VIX spikes, near-term VIX futures move up a bit, creating a short-term feedback loop where the rising VIX increases VIX futures, that moves the SVXY, trips the stop loss orders and that moves SVXY further down, putting pressure on VIX and VIX futures again, etc.
    Aug 29, 2015. 11:46 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    I warned people throughout the article and was advocating cautiousness in many places. I am fully aware of prolonged backwardation risks. That's why I mention this trade as part of a long-term strategy, not a single trade out of context. And I recommend lots of caution, including using protective puts on a position to prevent a total disaster if this occasion happens to be the one of the very few where the VIX futures curve keeps rising and remains in backwardation for a long time. It is about risk/reward. I am not saying SVXY can't fall by 20% or even 50% from here this particular time.
    Aug 29, 2015. 11:36 PM | 1 Like Like |Link to Comment