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Robert Zingale

 
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  • Mispricing In VXX Put Options [View article]
    My 34 day trading period also has the constraint that VIX futures are at or below their current level. Otherwise you could point to December 8, 2011 when VXX dropped ~40% during that time. But the VIX futures started above 30. When you say VXX, you are really saying VIX futures.

    I can illustrate this through an fictitious example for clarity. I say Future Y has not historically fallen below 15. Future Y is currently at 16. Therefore, I say it is unlikely to experience of decline of more than 1. Then you say well when Future Y started at 25, it fell 10.

    My point is that I realize it has fallen by the amount you state, but it is not comparing the same thing.
    May 2 11:44 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    I completely agree. Do you know where I could find comprehensive data on this and I will run the analysis?
    May 2 11:33 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    I believe this is a comment to my other article http://seekingalpha.co...

    When I said VIX short-term index I referring to the futures index or VXX. I did not want to say VXX explicitly because it did not exist prior to 2009, so to be exact I was referencing the index which VXX derives its value from. Probably should have wrote "future" in there for clarity. Thanks for catching :)

    The current level of futures has a lot to do with the level of VXX on 12/20/10 because it is more representative of what declines can be seen given the current level of futures. For instance, if VIX futures were are 50 (current month) and 60 (next month), then we know that the price decline that could occur is very large in a short amount of time. Future prices and VXX could theoretically fall >70% in the matter of a day.

    However, since VIX futures have had recent trouble falling below 15.55, if you start at VIX future prices of 18, then you will have much difficulty seeing drastic declines. So my analysis looked at what were the biggest declines in the past when starting at the current level of VIX future prices (current and next month prices). What I found was that much of the declines were from rolling costs, but the rolling costs were in an extremely high period (much higher than the current level).

    Therefore, I concluded that it was unlikely for VXX to fall below $11 by June 15, 2012.
    May 2 11:31 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    I think of contango and rolling costs as two separate mechanisms of return. Theoretically, the current month future price and the next month future price could both be the same price (let's say 20). If the VIX index is at 15, and both the current month future and next month future converges to 15 tomorrow, all of this gain is from convergence not rolling costs.

    Obviously this is a very stylized example for illustrative purposes, but that I how I think about returns from VXX.
    May 2 11:27 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    I would write puts on VXX vs. $VIX because I think the intrinsic value of the puts is more mispriced on VXX. I don't think market makers model the decay from contango and potential price declines correctly.

    See my article which talks about this http://seekingalpha.co...
    May 2 11:23 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    I wouldn't trade this because it is only 8%. When I mention contango, I only mean the delta between the current month future contract and the spot price of the VIX. In this article I was looking for short swings in VXX to profit on.

    However, I am short VXX right now (as a longer view short vs. short-term swing trade) because rolling costs are very high. Profits can be made off of the rolling costs as well as the contango, but sometimes the lines get skewed in terms of what actually made you money from VXX. This article was meant to focus on contango/backwardation only. I wrote another article, which explains the powerful gains from rolling costs - http://bit.ly/IrBzSS

    I plan to write another in the near future that puts all of this together (contango/backwardation, rolling costs, slope of term structure, etc.).
    May 1 11:31 PM | Likes Like |Link to Comment
  • Mispricing In VXX Put Options [View article]
    Which is the exact situation that I am in. Short a bunch of VXX and long IVOP.
    May 1 06:21 PM | Likes Like |Link to Comment
  • Mispricing In VXX Put Options [View article]
    I agree 6 cents is a thin profit but my broker does not make me put up a whole lot of margin for this trade. If successful, I am looking at ~5% return on my margin after commissions in less than 40 days. I think that is a decent bet to make given the rationale I made in the article.
    May 1 04:30 PM | Likes Like |Link to Comment
  • Mispricing In VXX Put Options [View article]
    No I believe it very possible for VXX to reach $12 by June 15, 2012. The difference in the probability of reaching $12 vs. $11 is extremely different. VXX is very different than VIX because of the roll costs VIX futures have in contango.
    May 1 04:26 PM | Likes Like |Link to Comment
  • Mispricing In VXX Put Options [View article]
    My model does consider the loss from roll costs. However, roll costs are only realized through declines in VIX future prices which often occur around expiration. Additionally, my worst case scenario analysis assumed that roll costs (next month future price / current month future price minus one) were 16.6% on average (vs. the current level of 11.6% as of my writing) and that the current month future and next month future price both converged to 15.55 on the day of option expiration. Usually this convergence would not occur until future expiration which happens the following week in June.
    May 1 04:22 PM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    The only historical profitable time to buy VXX is when VIX futures are in backwardation. VXX does not track with VIX as VXX represents VIX futures, which have their own nuisances. Since VIX futures have historically been in contango and have rolling costs working against a long investor, VXX is poor security for a buy and hold investor.

    If VIX futures maintain their historical rolling costs in the future, then VXX price will be constantly approaching zero until the ETN's maturity.
    Apr 25 03:03 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    I will sell naked puts again once the current month's VIX future price hits like 15 and rolling costs (next month future price / current month future price) can't deteriorate to the strike price.

    For instance, if rolling costs are 10% and you are thinking about selling a put that expires in 2 months. Let's say VXX is trading at 16. I would sell puts at ~$13 or less (100% - 10% roll cost month 1) * (100% - 10% roll cost month 2) * 16. Although these opportunities don't arise often, when they do they have been profitable for me.
    Apr 25 02:52 AM | Likes Like |Link to Comment
  • Contango And Backwardation's Relationship To VIX Futures Convergence [View article]
    Writing naked calls can be very risky if you run out of margin when VXX spikes. When I do write calls on VXX, I usually write them for options 1-2 months out at a strike price that is around double the current VXX price. The premiums to be made are smaller, but you will get a larger return from the time decay in options by writing shorter maturity options.

    I will also write naked puts at low strike prices on VXX when VIX futures hit 52-week lows. At these times, VIX futures are unlikely to decline much further. Additionally, at these times, I have found strike prices and maturities where the rolling costs could never reach the lower strike price in that period of time. My bet is that VXX will likely go down but just not by that much.
    Apr 24 11:03 PM | Likes Like |Link to Comment
  • New Strategic Volatility ETF Concept Shows More Promise Than Volatility ETF [View article]
    Hey my apologies on the confusion. XVX should be VXV. I agree that daily rebalancing is difficult, however, rolling costs tend to be sticky so in practice it ends up being less frequent than daily.
    Apr 24 09:05 PM | Likes Like |Link to Comment
  • Debunking The '100 Minus Your Age' Rule Of Thumb [View article]
    This fund achieved superior performance from active management by Fidelity. After fees, the fund would have only generated 11.14%(12.06% return minus 0.92% fees), which is not that much better than holding the S&P 500. You also bear the risk that fund managers could eventually underperform as well. Past manager performance may not persist.

    Additionally, the reason why mixes of investing are important is because they will have higher Sharpe Ratios than the FCNTX. Meaning for the same amount of return, they will have less risk.
    Jan 27 10:57 AM | Likes Like |Link to Comment
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