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Surly Trader  

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  • Risk Flare Ignited [View instapost]
    I agree with you about putting things into perspective. The move in the VIX by itself is not entirely disconcerting,especially given its low starting level, but the move in commodities will definitely have some reverberation across the markets. We will see how this week plays we are happy again.
    Apr 16, 2013. 10:29 AM | Likes Like |Link to Comment
  • VXX Outperforms The VIX [View article]
    These posts explain it:

    And in Oil:
    Oct 5, 2011. 12:13 PM | 2 Likes Like |Link to Comment
  • Zombie Nations? [View article]
    I do not make a habit of making up data. You can find these levels on Bloomberg.


    Jan 13, 2011. 07:56 AM | 1 Like Like |Link to Comment
  • Why You Should Hate VXX [View article]
    If you have a strong conviction that the market is going to fall soon, then the VXX is an ok hedge. VXZ is a better hedge because it does not have as strong of a time decay if you hold the position over weeks and months. Alternatively, you might want to look at long put spreads as well. I am fine with using VXX as crash protection over short intervals, but as a long term downside bet there are better alternatives.
    Oct 21, 2010. 01:54 PM | 1 Like Like |Link to Comment
  • Inflationists vs. Deflationists: The Battle Rages On [View article]
    I never made a statement on whether the actions were right, good for taxpayers or good for investors - only that he would ultimately be successful in sparking inflation.
    Aug 18, 2010. 11:13 AM | Likes Like |Link to Comment
  • Long-Dated Volatility Opportunities [View article]
    Thanks for the great comment -

    I will always have a bearish view on *implied volatility* and try to have a negative vega position *of some sort* most of the time. That might be vague, but the positions change often. I also often have short positions on the equity indices that offset losses due to spikes in implied volatility.

    As to why I have a bearish view on volatility overall is related to global liquidity. Despite the headlines and freakouts, the fed and other governments are pushing money into every arena at unprecedented rates. You can partly see this through the spread between the 10Y and 2Y treasury. Please check out this article to see the correlation between volatility and this spread:

    For the next few years I expect average annualized volatility to be in the 18-23% range. When I can buy implied volatility in the mid to low teens I will do so and when I can sell implied volatility above 30 I will do so and the strength of my conviction will depend upon the magnitude of the dislocation from the median. The fantastic thing about volatility is that you can truly average in and feel confident in your position. You just need to be able to stomach the mark to market losses as everyone runs for the exit doors. That ability to stomach it is the reason that you get paid for being short volatility in the first place.

    Jun 17, 2010. 12:10 PM | Likes Like |Link to Comment
  • Extreme Fear in S&P 500 Option Skew [View article]
    It seems like the market wants to trade down from here so I could easily see 950-975 on the S&P in the short term. Beyond that, I have a hard time believing a further fall. As I have pointed to in the past, the earnings yield of the S&P 500 is about 8% at a 1,000 level compared to a 10 year treasury rate of 3.2%. Either earnings are completely wrong, treasuries are way over-valued, stocks are undervalued, or a combination. If you are scared to make a direct play, then it is an opportune time to sell out of the money puts and buy out of the money calls. The skew is only making that more attractive for you.
    Jun 8, 2010. 08:19 AM | 1 Like Like |Link to Comment
  • Fading Volatility [View article]
    My short position is actually in very good shape unless VXX trades above 35. Volatility is mean reverting and a VIX of 45 is unsustainable. 45% means that 33% of the trading days should have moves that are greater than +/- 2.8%. If you buy volatility at those levels then you are making a mistake.
    May 27, 2010. 09:23 AM | 2 Likes Like |Link to Comment
  • Volatility of Volatility: Can We Count on a Reversion to the Mean? [View article]
    I will agree that the average is meaningless, but the standard deviation of volatility is not. I cannot come to a conclusion that the 99th percentile confidence interval for vol of vol is X to Y%, but I can make comparisons between the standard deviation today and the standard deviation during the crisis. We can only make comparisons between current market returns and historical market returns and many of these comparisons can be very useful in developing an investment thesis.
    May 6, 2010. 08:57 AM | 1 Like Like |Link to Comment
  • Financial Reform Bill Misses the Target [View article]
    This grilling of the Goldman guys has been painful to watch today. I am just waiting for one of these guys getting pressed to say, "None of these garbage mortgages would have been originated if the government had not pushed 'A home for every American' policy. No one would have bought the garbage, thereby propping up the market, if the Fed had not kept interest rates so low for so long, thereby forcing investors to buy riskier and riskier assets in search of yield"
    Apr 27, 2010. 03:51 PM | 2 Likes Like |Link to Comment
  • Goldman Sachs: (Lack of) Ethics on Wall Street [View article]
    It was a pipeline. Banks bought or originated mortgages, put them in CDO's and sold them to clients. The issue for the banks was that the pipeline was not cleared before the market tanked. They were left holding the bag.
    Apr 21, 2010. 01:48 PM | 1 Like Like |Link to Comment
  • A VIX ETF Pair Trade: VXX/VXZ [View article]
    The "price" information starts at 100 at the inception of the two ETN's using the actual daily returns of each individual ETN. So the price was fabricated using ratios of daily returns.
    Apr 20, 2010. 10:37 AM | Likes Like |Link to Comment
  • A VIX ETF Pair Trade: VXX/VXZ [View article]
    The beta of the VXX is about twice that of the VXZ. You can read about that here:
    Apr 20, 2010. 10:36 AM | Likes Like |Link to Comment
  • A VIX ETF Pair Trade: VXX/VXZ [View article]
    On a daily basis you would be short 1 share of VXX and long 2 shares of VXZ so that the time series is a daily return of that portfolio.
    Apr 14, 2010. 07:25 AM | Likes Like |Link to Comment
  • Relative Value: Stocks vs. Bonds [View article]
    If I believed that social security was a 100% guaranteed stream of payments and that stream was enough to mute out any large drawdowns in my equity portfolio given my cost of living then I would agree with you.

    You could also invest in a fixed annuity that would act much like that social security fund and have similar logic. Unfortunately it is difficult to make these types of blanket statements without knowing each individual circumstance.

    An even more interesting question: if a retiree annuitizes enough of their savings to cover the base-line cost of living, will they act more rationally with their remaining retirement funds?
    Apr 13, 2010. 05:44 PM | Likes Like |Link to Comment