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Rock228
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I trade volatility ETPs (SVXY, XIV, UVXY), S&P 500 through SPY, UPRO, SPXU, and invest long term in Dividend Growth stocks with high dividend CAGR values. Individual stock picking is a waste of time to me unless the company pays out large and high growth dividends. Macro mixed with Volatility... More
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VIX CONTANGO
  • What Now? 319 comments
    Feb 1, 2014 9:24 PM | about stocks: SVXY, XIV

    Losses stink and no one wants to have them. But it is a part of life when you try to tame the bucking bull that I call the VIX cycle. My portfolio is down at least 6% so far this year. If you can't deal with losses and stay calm under the pressure of the drawdowns then you are in the wrong trade my friends!

    You Are Down - For Now

    When the cycle turns and we start heading up again you will more than make up for any losses you have. To me it is very important to preserve capital when you are taking such high risks in something like (NYSEARCA:SVXY) or (NASDAQ:XIV). That is why I didn't hesitate to liquidate 80% of my holding at about 5% lower than I bought in. You are much more likely to have a positive outcome selling at a loss and buying back once you get a confirmed bottom.

    This chart shows the delta between holding after I went all in @ $63.03 = 12% drawdown and selling 80% SVXY @ $60.05 = 16.2% drawdown + buying it all back at different drawdowns. The -4.2% is the loss I took by selling 80% of my position early. Why is it so important to sell for capital preservation? See for yourself. (Forgive the chart, it isn't the simplest to read but all the relevant info is there)

    TOP SVXY $71.63          
                 
    20% Buy $ $63.03 $63.03 $63.03 $63.03 $63.03 $63.03
    20% Draw % 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
                 
    80% Sale $ $60.05 $60.05 $60.05 $60.05 $60.05 $60.05
    80% Draw % 16.2% 16.2% 16.2% 16.2% 16.2% 16.2%
                 
    80% Buy $ $46.56 $50.14 $53.72 $57.30 $60.89 $65.18
    80% Draw % 35% 30% 25% 20% 15% 9%
                 
    AVG Buy $ $49.85 $52.72 $55.58 $58.45 $61.31 $64.75
    AVG Draw % 30.4% 26.4% 22.4% 18.4% 14.4% 9.6%
                 
    % PROFIT TO $71.63 43.7% 35.9% 28.9% 22.6% 16.8% 10.6%
    % Profit Without Selling 13.6% 13.6% 13.6% 13.6% 13.6% 13.6%
    Delta - 4.2% "Loss" 25.8% 18.0% 11.0% 4.7% -1.0% -7.2%

    Focus on the 80% Draw % row and then work up and down from there. I am pretending I bought back my 80% position at 9%, 15%, 20%, 25%, etc. drawdown and comparing that outcome to if I just held on 100% @ $63.03 purchase price = 12% drawdown.

    Notice that I come out ahead (Delta Row) by selling when I did in all examples except the 9% and the 15% drawdown buy price. And the 15% buy is only off by -1% if I held it all at my 12% draw original buy price. Basically a wash. So only if i was way off on my sale day and the SVXY moved swiftly in the positive direction would I have "lost money" by selling and buying back at a much lower drawdown. Worst case scenario I would have made at least 6% profit including my loss on the earlier trade. Most people would take a 6% profit for 2 months of trading.

    Now look at the left side column extremes. If you held while we had a drawdown of 30% you would be waiting for the SVXY to go up 36% and you only get to capture 13.6% of that gain. Not only that before we moved up you were starring at a nearly 20% "loss" of red....And the human tendency is to sell when the pain gets high - at the absolute worst time to sell...Can you hold on starring at a 20% loss if you were "fully invested" in SVXY?? Most people would not hold out.

    Two questions are probably going through your head right now - even if I agree with you doesn't that mean you should have sold it all? Why keep 20%, why not 10% or 40%?? I am stricking a balance between two investment strategies, limiting my downside risk AND keeping some skin in the game to keep me honest.

    #1 - If I have no skin in the game (sold it all) I am less likely to stay on top of the trade and get in at the right time. I learn quicker this way.

    #2 - If I am way off on my sell timing and SVXY went higher quickly so I decided to go 50% SVXY and 50% UPRO or TQQQ then the SVXY 20% buy level is still less than half (20% of 50%) of the total amount of SVXY I want to own (hope that makes sense).

    The psychology of the sale is very important. Being prudent by admitting you were wrong and selling early to look for a better entry point will save you many more times than it will hurt you. Just think how screwed you would be if this was in fact the big one like 2011 - that was a 74% draw down and it took 16.5 months for you to get back to even had you bought at the top!

    If you used my sell 80% when you mess up calling the bottom strategy and entered using my buy signals you would have gotten back in 80% at the 72.51% draw down level. Even if you bought that first 20% at the top you would be at an average 58% drawdown buy price minus whatever loss you took before you sold that 80%. Much MUCH better situation. You would have been back to making money in January 2012 just 3 months after the bottom vice sitting on a loss for 15 months!

    GREAT - BUT WHAT HAPPENS NOW!?

    Friday Vratio indicator might be showing us the bottom....Or we could have one more break to the downside Monday to shake out the scared hands. I just don't know if this will last past Friday's jobs #. Emerging markets problem is not likely to snowball, S&P earnings are actually really good, P/E of stocks have gone way down since last quarter. The economy is growing in the US (even if it is mostly Fed driven) we have to keep this in mind. This is not major pullback conditions unless something else is triggered in China or another problem that hasn't shown itself yet.

    Bill Luby published an article on Friday that stated he was
    "Disclosure: Short VIX and VXX at time of writing". That guy has forgotten more about volatility then all of combined know about volatility!

    I am going to stay 20% long SVXY and wait until 3 indicators are in the green and then add ~50% to my SVXY position. Then I will wait until it looks like we will close below VIX 15 to add the rest of my position - that position may be UPRO or TQQQ depending on where SVXY is compared to stocks.

    Enjoy your Superbowl Sunday!

    Disclosure: I am long SVXY, SPY.

    Additional disclosure: 20% Long SVXY trade account and 100% Long S&P 500 in 401k

    Stocks: SVXY, XIV
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Comments (319)
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  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Great post as usual Rock! January was a wake-up call that the inverse trade is not an endless easy money train that everyone smart enough to discover can easily ride into the sunset. And the big drawdown in January wasn't anywhere near what it could have been. Support held over and over last week - had it broken (or if it does break next week) look out! I don't think it will - that support level should have broken if it was going to. I think we bounce starting Monday and picked up more XIV and ZIV on Friday near the close using my "nausea" indicator (I have discovered this month that when I feel nauseous at how fast and far the price of XIV drops, it is a great buy indicator). This is obviously a high risk trade.
    Observations: VIX as a hedge really works. Buy when the VIX is low. There is no telling how high the VIX can go (Note to self when VIX is near 11, if that ever happens again). Also, we need to figure out the long volatility trade. VXX and UVXY killed it in January. Catching even a small part of that trade would have been huge (easier said than done I know).
    The VIX goes back down. Every-time - ever! Don't panic (ok, if Bill Luby panics then I'll panic), but you are right, the guy who knows the most about VIX hasn't flinched yet, VIX will break again. Earnings are ok, we have $65B of POMO coming in - world is far from ending. Nobody knows the future, but statistics are on our side here with positive expected value, at least from a mean reversion perspective. High risk and high reward go hand in hand - here we learned that contango has a cost.
    2 Feb 2014, 12:18 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » tortoise - I am convinced there will be a "big one" (correction) this year just not sure exactly when. That being said if it isn't now I think anytime from April 15th-September is the time to look for entries into UVXY. Not sure how I will play it, just VIX calls, long UVXY or both. Are UVXY calls "less risky" and give better returns? That might be the play...hmm...gotta look in to that because when the big correction comes you could make 100%+ if you get in UVXY at the right time.

     

    Midterm elections have a May-Sept downward bias in the past and a HUGE up move starting in October. And I think we will get back near VIX 11 again - nothing has fundamentally changed in the US except for the better in terms of fundamentals. People have to remember that. Now if the jobs number on Friday sucks a duck then we can start rethinking things. This China Lunar new years thing is going to be interesting when their market finally opens again Feb 7th...Hong Kong opens tomorrow night so that will give us an initial indication on how screwed China stocks are. Maybe this US correction stays until Friday. Who knows. Just watching and waiting for green lights.
    2 Feb 2014, 11:27 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    Hi Rock,

     

    Another good article. I might want to stay on the sideline for a while and tempt to jump into the other direction. BTW, has anyone tried buying straddle on VXX/SVXY during such murky conditions? During the past week the movements were large but you cannot really forecast what the direction would be.
    3 Feb 2014, 11:43 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    windwine, the problem with instruments like VXX/SVXY/UVXY is due to the volatility, the premiums are also very high, so you will likely lose money on the straddle all the time.

     

    Remember, the instrument has to move enough in ONE direction to offset BOTH premiums paid (call & put) just to break even.
    3 Feb 2014, 01:20 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    I am becoming convinced we will have a big one this year and this just wasn't it. I am happy this wasn't the big one because now we can have better plays in place before it's here. UVXY was running towards a 100% gain with what we just had - something I wouldn't have believed had I not seen it happen in real time. Lots of good lessons learned - get out and stay out of XIV when the market rolls over, hold onto your hedges until we confirm a top in the VIX. I am going to happily 'not' hold any XIV on the next downturn. Cash is king in even a small correction like we had here. New strategy will be to scale at possible support with tight stops in case it doesn't hold.
    8 Feb 2014, 05:43 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Rock,
    Another great article. I really appreciate your honest disclosures. All great traders make mistakes. It's how we learn and react from them that matters. I like your plan going forward.
    2 Feb 2014, 09:43 AM Reply Like
  • rodh7858
    , contributor
    Comments (133) | Send Message
     
    Thanks for a great article, Rock. Your writing is lucid, concise and yet very informative.
    2 Feb 2014, 09:58 AM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    What did you mean by this statement?

     

    "Bill Luby published an article on Friday that stated he was
    "Disclosure: Short VIX and VXX at time of writing". That guy has forgotten more about volatility then all of combined know about volatility!"
    2 Feb 2014, 11:54 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Bill Luby is a serious expert on all things VIX. He has a blog and also contributes on SA:
    http://seekingalpha.co...
    3 Feb 2014, 10:49 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    I sold 2/3 at loss. Will keep 1/3 as a token. The losses were a bit too steep to just sit and wait out. :)

     

    Will certainly play this in near future, but have to see the VIX top out, and in contango again.

     

    Great group we have here!
    3 Feb 2014, 10:44 AM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    OK, I'm scraping myself off the floor, and looking at this again.

     

    thanks for the post Rock.

     

    What are peoples thoughts after todays 300+ drop in DJ. Are we entering new territory, or how are the indicators flashing this evening?

     

    thanks all
    3 Feb 2014, 05:01 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    I'm interested to see what Rock has to say. I think the market is going down more. Art Cashin on CNBC said if the 10 year goes below 2.6% and the S&P goes below 1770 there is more downside to come. Both occurred: 10 year is 2.58%, S&P is 1741 and VIX is 21.44, approaching the 52 week high. I sold the remainder of my SVXY today. This is getting exciting!
    3 Feb 2014, 05:33 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » All - Indicators are all deep red, I don't want to catch a falling knife! Staying on the sidelines for now.

     

    Art Cashin comment, I am not well versed on bonds. I think the speed of the moves is the important part because the stock market gained a ton the last 2 years while the 10 year moved down down down....so I don't think the correlation of lower yield = lower stock market is direct except when the speed of the move is high...might be talking out my bum. LOL!

     

    Things to keep in mind:
    -Hong Kong market opens up tonight, maybe that will take away some of the bleeding (traders can whack that market instead!)
    --Last time Vratio this low - Feb 25th 2013 - that was the bottom of that cycle.
    -Never had 2 VIX 20's in a row during QE3. Last time VIX in 21's was Fiscal Cliff Dec 28th 2012.
    -Longest Backwardation during QE3 is 3 days (today was day 2)
    -XIV draw = 27.1% current, Max during QE2 or QE3 was 30%
    -In false bottoms (where 1st Vratio low didn't predict the bottom), the 2nd Vratio low does predict the bottom or very close to it....so...

     

    It feels like we are getting close to a bottom....or a 50% drawdown. I am chomping at the bit to get in - it would take a 37% gain from here to get back to SVXY 52 week high and we all know we will get there we just don't know if it wil be 1 month from now or 15 months from now.
    I went to cash in my 401k just in case. For some reason i couldn't get on SA all day today.....until after the market closed...too much traffic maybe?? It is annoying me.

     

    We need higher Vratio then today and positive contango late tomorrow to look for any entry into this mess. Sitting on my hands until then. We do look a lot like June 20-24th 2013 (last years largest pullback ~ 6%) which was that bottom. Good luck all!
    3 Feb 2014, 08:42 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Another tidbit. Guy on CNBC said during major Fed moves in policy (tightening) there is an 8.5% average drawdown in the market.
    3 Feb 2014, 08:54 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Sold out my SVXY position.

     

    Do not like:
    1. Emaerging markets
    2. Fed taperiing
    3. Backwardation
    4. Debt ceiling coming
    5. Untested FED chairman

     

    Using Rock's rules, better to:
    1. Be patient
    2. Wait for the VIX signals
    3. Don't get greedy (I say don't force the trade)
    4. Minimize my chance for losses

     

    Good luck all.

     

    Will let you know when I buy back in.
    4 Feb 2014, 10:55 AM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    RJL - "patience pays" is my new mantra when it comes to XIV/SVXY. One observation - cash really increases your options to jump in at possible bottoms in XIV. When you already have a position 'risk management' doesn't allow you to throw more money in the game. I found myself locked out of possible entry points because my risk tolerance just wouldn't allow it. I am not going to make the same mistake next time (so I hope).
    8 Feb 2014, 05:47 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    tortoise;

     

    Totally agree with you!!!
    8 Feb 2014, 05:52 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    OK, I have taken a smallish feb 27th $58 call posn. Bought at
    $2.10.
    I had the order in, as the futures list was moving away from
    backwardation, e.g. feb price now 18.40, March 18.06, apr 18.09
    and I had my bid in at the bid price. the ask was $2.90, but after
    a couple of hours it got filled anyhow.
    So, I may be early, but I got the calls at the cheap end of the spread.
    I had bid low, expecting to be filled tomorrow, not today.
    We shall see
    btw, I realise this is breaking all the rules, and I may have to keep a
    close eye on this.
    apologies for cluttering up the clever board with cowboy trades...
    4 Feb 2014, 11:22 AM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    I am salivating here already too :)

     

    Staring at that futures curve, waiting for it the go fully ascending again and w/ spot VIX a bit closer to futures price...
    4 Feb 2014, 11:30 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » All - Looking better and it is likely Monday was the bottom. That being said I want Contango to be positive before I move a lot of money in. I MIGHT add 30% today if the close looks good - Vratio > 1.00 and the other data going in the right direction.....

     

    I will be 80% in once all three of my major signals are green. And I will add the lat 20% when VIX spot is below 15 near the close.
    4 Feb 2014, 02:12 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock, I wouldn't do it yet. I will wait for friday non-farm payroll no. If its bad, people will truly start thinking we are heading into recession as the ISM is already dropped. And, we could hit 200 DMA on S&P to 1700. From then on, it will be all merry for svxy, as people will start buying as S&P will be valued 15times at 1700. I would advise to hold on until friday. And, I truly wish, friday be bad. If its not, I see there will no contago. I really want S&P to go down to 1700, so that the next few months we will have contago.
    4 Feb 2014, 02:41 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Also, isn't the debt ceiling suspension over on Friday?
    4 Feb 2014, 03:21 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Looks like its not and also real time limit is around march 1st week, this friday is more of date where people agree on terms. Republicans doesn't want to fight this time.
    4 Feb 2014, 04:11 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    My guess is a buy today and get out tomorrow may snap a small quick profit, but a longer term might be problematic. BTW, anyone noticed that in the past few days the theoretical SVXY based on future prices almost always went down (~1-2%) in the extended trading hr? Is that a sign or just random?
    4 Feb 2014, 05:10 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    windwine, it tracks its NAV. If it doesn't track its NAV during regular market hours, it does after-hours.

     

    http://yhoo.it/1kP6yen

     

    If you compare that to SVXY's actual value, it appears that SVXY's price actually went way past its NAV during the day today, hence why it dropped after hours (to come down to meet its NAV).
    4 Feb 2014, 07:31 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    I understand that part and that is why I am checking the theoretical SVXY value or the underlying VIX future prices. My observations is that during the past few days the two front month VIX futures almost always went up precipitously ~4-4:15 EST. Is that a ominous sign or is it just simply decided by the supply and demand from the ETFs' daily re-balance? I
    4 Feb 2014, 07:43 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    UVXY and VXX have also been trading way past NAV's (usually on the downside), not just SVXY so something is definitely up.

     

    There was a day last week at the close (after hours) when UVXY NAV was over $8 above UVXY's price!!!

     

    As a result, next day in the morning, even though NAV dropped like 4%, the ETF still went up since it's price was still below NAV even after the NAV drop.
    4 Feb 2014, 07:53 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    idk, does that present an arbitrage opportunity on simply comparing the SVXY and it's NAV, and trading accordingly? near the close of play on any given day.
    5 Feb 2014, 04:25 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    James, it does indeed. In fact, all of these VIX exchange traded products have their own "designated arbitrageurs" that come in and do this, and they're usually on top of it, but they haven't been the past 2 weeks likely due to how volatile it's been, providing an opportunity for retail investors who can see the difference to profit.

     

    However, it won't be real arbitrage for retail investors unless you are gonna be trading the futures as well.

     

    For example, the arbitrageurs (known as authorized participants) designated by the fund are involved in the ETF creation/redemption process. For example, if UVXY is trading way above NAV (so share demand is way higher than supply), what they will do is create shares by buying the appropriate futures and swapping them for UVXY shares which they can then sell at a profit since UVXY is trading higher than the underlying, thus increasing the share supply (and bringing down the price closer to NAV). If the price is way below NAV (as it happened last week several times at 4pm, meaning demand was much less than supply), they can buy the shares and swap for the underlying futures (and can sell the futures on the futures market for a profit), thus reducing share supply and driving up the price to meet NAV.

     

    Since retail can't participate in this, what you can do is observe how much the price deviates from NAV and then buy puts or calls (VXX options trade until 4:15) or go long or short during after hours depending on whether the ETF is much higher or lower than its NAV.

     

    Hope that makes sense.
    5 Feb 2014, 11:36 AM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    thanks idk. that's a great explaination.
    I need to tweek my core nature of behaviour a bit in order to successfully engage in this territory though, as I keep jumping the gun and wiping out.
    At least this time I have some non margined SVXY at $53, and some $58 calls for feb 28th, so I have a bit of a chance.

     

    This , wait until the signals are in line, is easier said than done. Hence, you wise calm people make the moeny in this trade.
    5 Feb 2014, 11:43 AM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Very interesting idk. So, for example, if the NAV of svxy is 2% higher than the price of svxy late in the day, you should buy some just before the close or in after hours? I don't know much about after hours trading - can you explain how it is done? Also, how large a spread is necessary to make it worth your while to fool with?
    5 Feb 2014, 12:30 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    Hi William, yes you can do that, granted that the futures don't go up in the last 15 minutes after regular market close (VIX futures trade until 4:15pm EST). Although it's been the other way around though recently....VXX/UVXY were trading several dollars below NAV, and SVXY was trading several dollars above NAV, so in that case, you might want to go long VXX/UVXY just for a little bit.

     

    After hours trading is just like regular trading, but you'll want to do limit orders instead of market orders. Whether or not you decided to fool around with this depends on your risk tolerance regarding the spread....I would think anything close to 3 to 4%+ would be worthit, unless the NAV dropped so much the next day that it destroyed the spread and then some (but this is rare).

     

    There was a time last week when UVXY was something like $7 or so below its NAV. That was a killer time to buy calls or go long. The next day, even though the NAV dropped like 3%, the ETF itself was still up 3% since the price was still catching up to the NAV.
    5 Feb 2014, 12:41 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » All - I don't see the play on this NAV arbitrage unless there is a large delta like the $7 delta you describe above. I look at it this way, VIX futures data is delayed 15 minutes, it trades past the close so of course SVXY and XIV will be off some to its NAV and add in a premium for trading the shares (vice owning the underlying futures options - rolling them each day, etc..you know the added value of the shares themselves) and there you have a majority of your NAV delta on most days.
    Even if there is a delta how do you know the next day that the share price will catch up to the NAV or the NAV catch up to the share price?? That 2% NAV could be wiped on by a 4% move in VIX futures in the opposite direction come opening bell. It just all seems like a crap shoot. Interesting discussion but how do you make money off of it consistently?
    Has anyone found a way to make money off of it AND actually made money off of trading NAV?
    5 Feb 2014, 01:16 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    Rock, there are authorized participants who drive the arbitrage. They can usually be a day late, but the discrepancy doesn't last much longer because they make money with the arbitrage (as I described above), so I wouldn't worry about that. The bigger concern would be if the NAV drops (or goes up) so much that it more than eliminates the spread. That didn't happen in any of the 3 or 4 times that such a huge spread occurred last week though.

     

    You can't make money off of it consistently as a retail investor exactly because of this arbitrage that takes place (unless you are one of those authorized participants who can buy and sell futures and swap/redeem creation units for the ETF). Otherwise, you can go for it in the few chances when there is a 5%+ discrepancy like there was last week.
    5 Feb 2014, 02:01 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Rock,
    Any plans for UPRO or options?
    4 Feb 2014, 02:20 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Not Buying today. Waiting for better indicators. Risk not worth it.

     

    VTH - yeah, I am not likely to add today. Friday jobs number will be a huge mover of the markets I agree.

     

    William - At current price SVXY would have to add 35% to get back to 52 week high. UPRO has to add (5% * 3 =) 15%. SVXY is the better deal unless those numbers change significantly.

     

    Options - If we are still more than 20% drawdown Friday morning and the jobs number is good then I will go 2% into VXX Puts 2, 3 and 4 weeks out. Just in the money 2 weeks out, $1 out of the money 3 weeks out and $2 out of the money 4 weeks out. Plan could change but that's it as of time now.
    4 Feb 2014, 03:52 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    3-4 weeks options are not worth the risk. If you want to do, go for longer dated ( 6 months out ) and also deep in the money.
    4 Feb 2014, 04:18 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - On 20% or larger drawdowns if you can nail the SVXY bottom within a day or two - they absolutely are worth it. The average top return (meaning the highest payout if you sold that day - not necessarily on option expiration day) is between 200-400% on 4 weeks (20 trading days - trading days is more important that "weeks") just out of the money VXX puts. I know this for a fact because I did it twice last year.

     

    Unfortunately I never had the guts to hold out long enough and I always sold way early for between 40-140% gains on very small bets....testing the waters. But now I know it works.
    4 Feb 2014, 05:01 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    VTH, premiums are so high for any of these VIX-related instruments (because they are so volatile) that SVXY could go up a lot or VXX/UVXY could go down a lot, and by the time you get down to whatever price your options are, the actual value will likely not have changed much. I know people who bought long-dated puts/calls, and this is what happened.
    4 Feb 2014, 07:34 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock, I see you are sounding very confident, not to discourage you, we are in a totally different territory compared to last year. If the friday number is bad, i guess all bets are off until March numbers come out ( for both ISM and NFP ). For vix to be 18-19, do you understand how much money pro's have put in the table. Unless, Dove Queen Yellen says something good in tuesday hearing.
    4 Feb 2014, 05:12 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    And, I don't like the bond yield, they are projecting for economic contraction than expansion. Why the hell bond yield go down when there is taper in full swing. I am sure pro's know what they are doing. I see March number will be better because, hiring usually starts in late Jan to feb and, also, please GOD, give us a better weather for Feb.
    4 Feb 2014, 05:28 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - 2% is a 1 day trade in SVXY if you hit it right. I am not risking much capital. The "Pros" are wrong a lot and they lose their investors a lot of money to underperform Index funds. That's why VIX ETN trades work so well.
    4 Feb 2014, 07:08 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » BTW - Specific Example from my 2013 trading.
    June 27th Bought July 20th $20 VXX Puts - 3 days and 6.5% drawdown late on timing the bottom.
    Sold the last of them July 8th for 130% profit. That was with VXX falling ~ 12%...it fell another 12% by expiration day which had I held it would have been a 391% gain to be exact.
    4 Feb 2014, 09:50 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    Rock, which signals did you use to do that VXX trade?
    5 Feb 2014, 12:14 AM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Rock:

     

    During that period:

     

    Spot vix went from 19 down to 12 or so (mid 14's when you sold it).

     

    S & P went up 6% (3% when you sold).
    Key item you mentioned is that you bought in 3 days after the bottom.

     

    That is why everyone is counseling you to hold your new buys until after the jobs report.

     

    Why risk capital on an unknown, when you can wait for the jobs report and still get returns like you want?

     

    Best to you.
    5 Feb 2014, 06:52 AM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    RJL

     

    you are correct.

     

    I bought a bit yesterday, and I was 'picking up pennies in front of the train'
    I am, in fact, now gambling on tomorrows figures, although I can add after them if need be.
    5 Feb 2014, 08:38 AM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    James:

     

    If I learned one thing in investing in volatility, there is no need to try to time a purchase BEFORE an event.

     

    You can make plenty of money after the event.

     

    Disclosure- I am guilty of poor timing myself many times (I have to keep reminding myself that)!!!!
    5 Feb 2014, 09:59 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Thanks for the concern everyone. As I said earlier I have no intentions of buying anything until I get 3 solid green buy signals. The least accurate these signals have been since 2007 was 9% off from the bottom and that was on the 55%+ drawdown in 2010....buying at 46% draw opposed to 55% draw is close enough for me!

     

    And yes, if I couldn't time the bottom with pretty solid accuracy then I would not try the VXX Option trade. And I never use more than 5% of my Portfolio on any options trade. This one (if I do it) will probably be 1-2% tops.

     

    Still waiting patiently.
    5 Feb 2014, 11:18 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock, Agreed, as long as exposure is very small on options ( short term ), we are ok. I just want everyone know that. Good entry point to buy svxy shares may not be a good entry point for options. For options, I would rather buy once the event is out and based on market reaction. Trying to get rich quickly on options is very bad behavior.
    5 Feb 2014, 01:22 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    thanks RJL, I hope to learn and get the feel for this in the end. you guy's are very patient, thanks
    5 Feb 2014, 04:18 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Art Cashin said the jobs number is likely to be down due to the bad weather, but may be excused for that reason. He's hoping for an upward revision of the December jobs number to show the economy is improving. If the number is bad and the December number is not revised upward, we could see more downside after the announcement on Friday.
    4 Feb 2014, 05:43 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I wish it that way.
    4 Feb 2014, 06:07 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » 2/4/14 - All indicators still in the red. Still a sell signal. The indicators are moving in the right direction which points to Monday as the bottom but we don't have confirmation on that yet and will not have true confirmation until all signals are green again.

     

    Let's see what tomorrow looks like.
    4 Feb 2014, 08:39 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    I guess I side more with VTH on the relative poor value of short term (long) options plays, but disagree with him on the value of long term (long) option plays.

     

    100-400% returns for options sound eye-popping, but I am assuming you don't have more than say 10% of your NAV in the trade. And your timing must be perfect.

     

    Option buyers statistically lose more often than not at one month intervals. That is, in part, why the short vola trade exists.

     

    Calculate your leverage for the options trades using this formula: http://bit.ly/1ft7fX9

     

    You will see that the high I.V. for vix futures related options make them among the least leveraged option trades there are. LEAPs on VXX often trade at multiples of like .5 times leverage. That is a terrible substitute for the underlying.
    4 Feb 2014, 10:23 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Ikkyu - I only do it during QE times, after steep SVXY drawdowns, usually 1-2% of my portfolio and after I am as certain as I can be that the bottom was hit. Equities want to go higher when the money spigots are on. Let contango work its magic. Outside of QE? I wouldn't make that trade if you paid me to do it. Very particular set of circumstances to make the 4 week trade that I have backtested during all QEs.
    5 Feb 2014, 01:21 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Good action so far (12.10)

     

    Market sold off in the morning and bounced back.

     

    If it can finish fairly strong, this may have been the bottom.

     

    Then we can look forward to Friday's job report.
    5 Feb 2014, 12:10 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I haven't seen two consecutive S&P up days. Its sold off ~6% now. If it doesn't sell off another 4% more, I see VIX hovering around the level we have for next month. As I said earlier, I wish friday no be bad ( but I doubt looking at the ISM services data, which is very good ), and we hit 1700. If we hit, 1700, irrespective of the market goes up or not, I will see the implied volatility coming down as because the 10% correction monkey is off of the back. I don't think we would have had so much volatility had we had the press conf after the fed meeting. May be after tuesday Yellen talks, we can see some reprieve on VIX.
    5 Feb 2014, 01:04 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Show me a time in history where VIX stays in the 18-20 area during QE for an extended period of time.....it doesn't. It spikes higher during pullbacks, bleeds lower during flat times and falls quickly during up moves. Maybe this time will be different....
    Don't shoot me but I was hoping for another washout day and a 5-10% SVXY drop going into Friday morning jobs number. Lower entry is higher potential profit. S&P is positive as I write this. Doh! :)
    5 Feb 2014, 01:42 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Market already discounted no-QE, market is always leading indicator. We are in a new era. Sooner we accept, better it will be. Re-assurance from Yellen can bring VIX down very quickly.
    5 Feb 2014, 02:21 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock and anyone,

     

    do we know the longest in the last two years the spot vix in backwardation to the first month futures?. And, also, first month futures in backwardation to second month futures?
    5 Feb 2014, 02:38 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    For Spot > front month: 7 days was the max since after the 2011 pullback. Couple of 4-5 day periods as well. IF you account for some noise of 1-2 days of contango amongst backwardation, it's more like 10-15 day stretches.
    5 Feb 2014, 02:59 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » If market discounted QE we would have had a 10-20% pullback starting after December Fed meeting. I am sorry but efficient market theory is a fantasy. People trade on the here and now let alone 6 months from now. It is all about what the implied perspective of the market is. For now people still believe in fairy dust therefore the traders believe in fairy dust. At some point the fairy dust will be no more and the market will wake up and realize this, have a tantrum and fall 10-20%.
    5 Feb 2014, 03:01 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    we are in now for the last 8 trading days?. Friday is THE big day.
    5 Feb 2014, 03:11 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - Backwardation, 4 total days during Oct last year with Debt ceiling/gov shutdown. In 2011, 3.5 months during the 20% correction and a 75% drawdown on XIV top that year 19 down to 4.90. It typically lasts for 1-2 days. We are on day 4 today, 5 if you count that day we were -0.06% :)
    5 Feb 2014, 03:15 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Not sure how you are counting backwardation. 4 days is true if you are looking at backwardation in the options market (VXV/VIX<0), but there were more days where VIX > front future month (11 days in Oct, in a 4 day stretch and 7 day stretch).
    5 Feb 2014, 03:22 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock, thats scary, was it not in backwardation even during taper scare may-june last year. Then, we are in something very serious.
    I don't know if I compare 2011 euro scare to now the EM one. 2011 euro scare is much bigger than the EM scare now.

     

    I wouldn't rush in to buy svxy anytime soon.
    5 Feb 2014, 03:28 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    RVijay, Thats what I hoped, to see Spot VIX more than the front month futures higher during almost most of the crisis. That makes me feel better.
    Can you please check during the May-June last year during taper scare.
    5 Feb 2014, 03:38 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    1 day of VXV/VIX < 0. 5 day stretch, 2 day stretch, and 2x1 day of VIX > front month, separated by 2-5 days of contango in between.
    5 Feb 2014, 03:41 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Ok, so, we are well past that this time. We may not see the 20% pullback, because during 2011 pullback, vix was around 30. Good entry point for us now would be around 1700 s&p.

     

    But, the problem is, the money lost in svxy because of backwardation will not be recovered. So, don't assume the upside would be as much as 52week high in a month ( for any option lovers who wants to play out of money calls ). We will go well past the 52week high after 2nd month.
    5 Feb 2014, 03:51 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    All, For every pullback last two years, there were triggers for it to go high ( Fed explained better in august, debt ceiling raised etc ). Now, market pulled back on economic news. will it be 2-3 months of data for market to digest to settle or move higher? what would be vix during those 2 months if we don't drop below 1750 now? if we drop to 1700 now, I am close to sure, the vix will drop as well after a month and the usual contago build up? The big question is, what if we end 1750 now, and how the next 2months to pan out.
    5 Feb 2014, 04:09 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RVijay - I count backwardation by the definition....VIX 1 higher than VIX 2.... Feb contract higher than March contract. Spot VIX plays no part in determining backwardation.
    http://vixcentral.com

     

    VTH - It went in backwardation 1 day, June 20th 2013, the bottom was two days later. We had 9 total days of backwardation last year.

     

    It is most certainly NOT scarier this time around. It is scarier when we do not go into backwardation because that means people expect the FUTURE to be just as volatile as today....that it won't get better but worse as we go along. That is scary! This is normal. In fact in June last year the VIX 2 was at 19+ for 7 straight days!! Our highest VIX 2 is today at 18.78...bordering on scary but that's what you expect right before the Jobs number. We rise into the jobs number and fall after. A story as old as time :)

     

    In 12 jobs numbers last year we had 11 where VIX elevated around jobs number day and then settled down lower. Only once did it rise further and that was the June jobs number...but that was after Fed minutes in late May plus Bernanke mentioning the "t" word to Congress May 22nd....
    5 Feb 2014, 06:47 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Spot> Front Month= Backwardization
    5 Feb 2014, 07:45 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » ikkyu - Nope. Spot VIX you only use for mean reversion calcs and to determine roll yield.

     

    VIX1 > VIX2 = Backwardation. Futures curve is in contango or backwardation. Spot VIX has nothing to do with that determination. Rising curve = contango, bent curve = backwardation

     

    http://vixcentral.com

     

    Stay with me here folks, if we can't all agree on the proper definition of words then we are in trouble.

     

    From the master of all things VIX.
    http://bit.ly/1ezfjaP
    5 Feb 2014, 08:44 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - "But, the problem is, the money lost in svxy because of backwardation will not be recovered."
    I have data going back to 2006 that says otherwise. Unless the curve changes (term structure) to very flat for a long period of time we are fine. If that happens then get ready to go to cash in the not so distant future and start shorting eventually because the next crash is a coming!

     

    5 Feb 2014, 08:51 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Fair enough, but I was just trying to answer VTH's intended question. If you want to use the future's curve only for using the term backwardation, that's cool with me. However, there is something to be said for VIX > Front Month, as everyday the front month has a bias up towards the VIX. From the web,
    The opposite market condition to contango is known as normal backwardation.(investo... "A market is "in backwardation" when the futures price is below the expected future spot price for a particular commodity.
    The web seems to include the "spot" price.

     

    However, to keep definitions aligned, it seems you consider the VIX, VXV, and futures curve to all be "independent" variables, so we can keep the terms "contango/backwardation" to solely the futures curve only.
    5 Feb 2014, 09:37 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    Hi Rock,
    I have to disagree with you on this minor detail about backwardation. In the traditional futures market, backwardation means spot>future price and contango means spot<future price. I know when we are talking about VIX ETPs we often refer to the upward slope as contago and I am OK with that. Maybe ikkyu is a traditional CTA and he is not used to our loose use of contango :-)
    5 Feb 2014, 09:37 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    A flat curve could also be because market makers have found a much better model of pricing volatility futures that eliminates much of the roll yield profit. I agree in the past this has been a foreboding signal, but doesn't necessarily mean the same in the future.
    5 Feb 2014, 09:49 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    For me the relevant definition is the one that directly relates to the future price performance of say SVXY. In a sense that if there is 'contango', SVXY is climbing up.

     

    In that sense to my understanding @rock's definition is the one of interest as the the price of SVXY is partially a result of shorting 2nd month futures and covering 1st month futures and rolling the proceeds (protifs in the case of 'contango') to SVXY...
    5 Feb 2014, 09:50 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Rock said, "Nope"!?
    Ok, I will express your objections to my graduate derivatives professor. Holy cow.
    "In the practice of commodity trading the term “backwardation” is commonly used to describe the basis of a futures position, which is defined as the difference between the current spot price and the futures price. Commodities for which
    the futures price exceeds the current spot price are said to be in “contango,” while commodity futures with a positive basis are referred to as being in backwardation" http://bit.ly/N5G6Sq That's from NBER.
    I don't even know what you mean by "mean reversion calcs."
    5 Feb 2014, 09:59 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Wind - 30 day "rolling" implied versus futures contracts fixed dates. What is the SVXY based on, the futures curve (contracts fixed dates) or the 30 day rolling implied? If you are buying VIX Puts or calls then yes the "classic" definition of backwardation is proper. I am buying SVXY a daily moving approximation of the first two months futures contracts so my definition is proper.
    http://bit.ly/N5Gkcl

     

    I am not trying to be a dink here. I think this point is VERY important. But if we don't understand the basics of what we are trading, how can we get better at it??
    5 Feb 2014, 10:00 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    Hi Seppo,

     

    In fact the spot is also important. Front month has to converge to the spot at expiration. So there is both the roll from 2->1 and also the movement from 1->spot loosely speaking. I think there was an SA article talking about how to calculate the exact daily ret for SVXY if both the spot and the term structure remain unchanged, you can see the role of the spot in that article. Sorry that I forgot which article it was.
    5 Feb 2014, 10:03 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    @wind Thanks, agreed.
    5 Feb 2014, 10:05 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    Hi Rock,

     

    Most of the time I also only look at the ratio of front to second future contracts since it is simple. But I still think it is the overall of spot+front+second determines the whole return picture as I replied to Seppo. VXX is another way to roll the contract and keep a long exposure in volatioity. Most of the time spot, front, second are not too "far" away from a straight line so looking at the slope would be fine.
    5 Feb 2014, 10:20 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Exactly, Windwine. SVXY holds contracts that are <1 month. Those contracts are converging to spot.
    5 Feb 2014, 10:35 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Regarding the 2->1 roll part only, is the properly calculated 2->1 roll 'contango' value / percentage available anywhere on a daily basis?

     

    I mean that (assuming say 20 business days in a month) someone would simply calculate the 20 day (most recent days) _average_ of 2nd month futures, and the same for 1st month futures, and then calculate what the result of shorting the 2nd month avg and covering the 1st month avg and rolling 1/20 of the proceeds/losses to SVXY would be.

     

    Reporting this value close to the closing every day would to my understanding give some idea for the SP movement leading to the next day. And would give us a better idea how strong the contango actually is, instead of tracking the daily contango value as reported e.g. on Vixcentral.com.
    5 Feb 2014, 10:44 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Last try I promise :) There is a term for Spot VIX versus VIX1 it is the roll yield. That is how I use Spot and VIX1. VIX1 and VIX2 give you contango.
    Are the VIX1 contracts converging to spot or is spot converging to the VIX1 contract as we get closer to expiration? Does the tail wag the dog or the dog wag the tail. The data I am looking at shows a typical 2:1 or 3:1 move the last few days before expiration. Spot VIX moves 2-3 points for every 1 point VIX1.
    5 Feb 2014, 11:48 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    All your answers are here:
    http://bit.ly/10wNbK7
    6 Feb 2014, 12:32 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I meant for the immediate month ( more for short term option lovers ) not long term. Yes, for svxy, the first two month futures contago/backwardation is what relevant, not spot price. But spot price more than 1st month, tells you the enormity of the situation, thats why i asked for it.
    6 Feb 2014, 06:02 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » When VIX front month futures are high in their normal range the Spot ends up higher then VIX1 much of the time. When VIX front month futures are in the low range the Spot VIX is lower than VIX1 an extremely high % of the time. What does this info tell us? My answer is almost nothing. My back tested buy signals show no obvious buy signals using "backwardation" on the Spot vs VIX1. However it shows a gigantic and obvious buy signal using backwardation on VIX1 vs VIX2.

     

    Today looks good as of this writing 2 strong buy signals and the other moving in the right direction. Waiting for the close to see if I dip my toe in.
    6 Feb 2014, 11:00 AM Reply Like
  • IndyDoc1
    , contributor
    Comments (341) | Send Message
     
    Thanks for this nice review article!
    6 Feb 2014, 04:48 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Rock:

     

    Like you, I was also hoping for a wash out day.

     

    Looked like a possibility this morning, but market recovered.

     

    As far as staying in the 18-20 range during QE, you must understand that even though we are in QE, we have tapering going on and thus the effect of QE is/ will be diminished along this year
    5 Feb 2014, 01:47 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    For those nimble traders in our midst:

     

    You may want to look at the daily chart of UVXY the last few days.

     

    Possibility of doing a day trade tomorrow (buy at its low and sell around the close of the day).

     

    I was very successful on one of these today.
    5 Feb 2014, 03:59 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Yeah, but how do you call the low?
    5 Feb 2014, 04:02 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    I look at two possibilities:

     

    1. If there is a variance in S & P 500 verses the reverse of UVXY (if S & P is up, UVXY should be down), I anticipate the variance will reverse itself and go to the mean.

     

    2. If they are both behaving the way they should, then look to see when UVXY reaches its bottom (probably about $100 or so) and play the ride up.

     

    I would not recommend this to anyone who does not day trade and watch the charts all day. This trade requires you to constantly monitor the charts.
    5 Feb 2014, 04:08 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    RJL - the trouble I have with divergence is calling which instrument will converge with the other!
    8 Feb 2014, 05:51 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Excellent article on where we are and what to expect Friday. http://bit.ly/1btmOf5.
    6 Feb 2014, 07:49 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » William - Wow, what a find on that article! He has some great data points to look at for precursors to the next recession. Good timing because I am in the middle of writing an article about what to do during the next crash. Well done William! :)
    6 Feb 2014, 06:06 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    I'm glad I was able to contribute something, even if It was a reference. I knew it was excellent information that we could use. If we all keep sharing the good stuff, we will get better at this. Sure wish we could entice MI back into the discussion.
    6 Feb 2014, 09:52 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    V ratio is 1.03 and contango is back 0.57%
    SVXY up 5.8%.
    Spot VIX down to 17.59
    Are we there yet?
    6 Feb 2014, 10:52 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I think we can go now.
    6 Feb 2014, 10:54 AM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    I disagree.

     

    This is just a precursor of what may happen tomorrow.

     

    Jobs number is the key (even though today's numbers were good)
    6 Feb 2014, 10:59 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Today was a massive front running of the jobs number. If I were a conspiracy guy (i am not) I would say someone was whispered the number and liked what they heard...Honestly, it's just people front running and hoping they are right. Hot money who can liquidate quickly if the number stinks.

     

    8:30AM can't come fast enough! Very exciting times! 50/50 SVXY and Cash right now. We win either way. Bad news and we sell and buy in even lower for a further advice higher. Good news and we buy and ride the wave higher.
    6 Feb 2014, 06:11 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    RJL, I agree. We all need to be patient. One more day in the grand scheme is nothing. We could get burned again if we don't wait.
    6 Feb 2014, 11:05 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Guys, you are missing the opportunity. Atleast put in 25%. ISM employment is good as well. I am expecting 210k+ for tomorrow. Market knows better than us. If s&p were to up only 5points, i wouldn't do it, but its up 20points. Thats something.
    6 Feb 2014, 12:28 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Two buy signals hit on $SVXY adding 30% by the close for a total of 50% position. Need jobs number to confirm bottom and go further in.

     

    Taking half a position is not a huge deal, if the numbers are bad then sell it all or scale back. If the numbers are good add a bunch more. Unless the numbers are horrible the VIX shouldn't spike.

     

    The rips are so big on the huge dips that being wrong, selling and getting back in can more than make up for any "losses" you get for being wrong the first time.
    6 Feb 2014, 01:45 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Do you expect a vix spike just before the jobs announcement? I'm wondering if that would be a good time to pick up a few more options.
    6 Feb 2014, 05:09 PM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    I was confused - thought the jobs release was at 2:00. Thanks for clearing that up. 8:30 release.
    6 Feb 2014, 10:01 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    NFP announcement is at 8:30AM EST... so close today 'was' just before the announcement if you wanted any options during regular trading hours. :)

     

    What a crazy day. I was starting to think XIV was broken. Went in expecting more of the same but made up a lot of ground instead. The term structure looks amazing right now - fell right into line early and just continued to collapse all day.

     

    No idea what tomorrow brings. Could end up with a bad number and rally. Could have a good number and tank. Never can tell. I'm in 60% - but with a 60/40 XIV/ZIV setup. I'm really liking the back end of the futures curve here. Best of luck tomorrow - looking forward to making money again here after watching our long volatility friends make all the gains this year so far!
    6 Feb 2014, 05:43 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Exactly :)

     

    We got a middling number, below estimates, and SVXY just keeps on climbing up, at least in pre-market. Gotta love this....Luckily I got in 50% yesterday at around $53.75...
    7 Feb 2014, 09:01 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Seppo - Coming off of low number, new number above 100k tilts positive. Higher chance of SVXY going up because of this.

     

    Added 15% to my $SVXY, will add another 15% sometime today by the close for an 80% position $SVXY. Let's see if this is wise or not :)
    7 Feb 2014, 09:46 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Jobs announcement is at 8.30 in the morning before market open. There is no VIX at 8.30, what you see the vix futures are anticipatory, may not be same as when market opens.

     

    But you can svxy shares in premarket just after announcement.
    6 Feb 2014, 05:45 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Breaking News: Jobs number comes in light, world does NOT blow up and sun still rises. Will the sun set tonight? We will keep you posted!

     

    BTW - I put a new article out last night. Not using that one until the big correction comes.
    7 Feb 2014, 08:57 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    By tuesday evening, VIX will plunge into 13's after market sees Yellen face.
    7 Feb 2014, 12:08 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    I went 75% in, but sold covered calls (today's 60's). Net cost of $58.65

     

    If they get executed, I earn about 2.3% today.

     

    If not, then at least I reduced my cost a little and will depend how to play them next week (keep the shares by themselves, or maybe sell weekly calls at about $64-$65)
    7 Feb 2014, 01:11 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    RJL, Wait until wednesday and sell 70 calls, its reaching 70 end of next week. No fear now, people will be covering their puts on spx.
    7 Feb 2014, 01:32 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - I wouldn't go that far...at least on calling the timing. A friend of mine said we are looking at a 30-40% gain from todays before market open price. So that is a 73-78ish upside potential. These things usually take 3-4 weeks to go back to 52 week high. But ya never know! I just don't think it is wise to try to call timing....distance is reasonable call but timing is just so tough. That being said I sure as heck hope you are right VTH!!
    Are we having fun yet :)
    7 Feb 2014, 01:44 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock, you will see your 1880 SPX soon.
    7 Feb 2014, 02:17 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    VTH:

     

    I am hoping that we stay below 60 today (so they don't get executed).

     

    Then I can see how Monday and Tuesday's action is (especially after Yellen's testimony) and see if I want to sell any covered calls at that time.

     

    Note- I would be selling them at about $4 higher than current price, so if they do gt executed, that would mean an 6.67% gain from the date I sell them to the end of the week. Thus, if SVXY spikes on Monday or Tuesday to say $65, I could sell them at $69. If they end up getting executed, my total gain for the week would be 15% (today's price of $60 to $69). I would take that gain any time.

     

    If they don't get executed, then maybe I made about 50 cents more.
    7 Feb 2014, 02:42 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » ALL - All 3 major indicators are green, green, green!! This indicator has not failed after giving a false bottom as far back as my data goes (2006) when we skew towards contango. Wednesday was the bottom, confirmation is in. Buy buy buy.

     

    VTH - Since 1741 was the new bottom, S&P 500 new top range is 1900-1940. :) A 6-8.5% rise from here. By my napkin math, I am not a chartist, TA, MACD, MickeyD's, Fibonacci, whatever. I just found all the medium to large rise and falls since 2009 and found a range for them. I hope you are right.
    7 Feb 2014, 02:50 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    How do you have VXV data back to 2006?
    7 Feb 2014, 04:34 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Thanks for the post. I always like to compare to Ocean Man, who has taken a net short position on the market with $SPXU as of today. Always exciting to see who will be proven right! :)
    7 Feb 2014, 04:49 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    RVijay, who is ocean man? Where do you follow him
    7 Feb 2014, 05:07 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    VHT here he is http://bit.ly/1bKoYeL
    7 Feb 2014, 05:10 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RVjay - I have VXV back to Jan 30th 2009. I have other indicators that I don't discuss on here. The majority of the data I use going back to 2006 is; Spot VIX, VIX1, VIX2, SPY and XIV with their associated drawdowns. Lots of other data can be drawn from those values.

     

    Trim tabs said $20B moved out of equity and into bonds in first 3 trading days in Feb. That is not a normal selloff or rotation - that is a panic. Panics when momentum fails turn the other way and snap back quick - like yesterday and today. History is not on Ocean Mans side but I could be proven wrong.
    7 Feb 2014, 05:16 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    VTH - right here on SA. He's a day trading enthusiast whose made profitable VIX ETF calls both ways, UVXY and XIV. He trades a lot more than only VIX ETFs though.
    7 Feb 2014, 05:23 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock, you don't need to share your recipe, as long as i get good food. :)
    7 Feb 2014, 05:25 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Once we cross 1800, we hit high 1850 very soon, by next week end.
    7 Feb 2014, 03:56 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    VTH:

     

    Stayed below 60 (touch and go there for awhile- but was hoping for a little profit taking at the end).

     

    Calls were not executed, so I keep the shares, as well as the premium.

     

    Good luck to all of us next week!!!
    7 Feb 2014, 04:03 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RJL - Does aftermarket count, very close to $60 there :) At some point I will learn and understand options trading so i can juice up profits a little bit more. That will be my summer goal :) Congrats.

     

    BTW - Final numbers
    Vratio = 1.069
    Contango = 2.91% Loves me some contango!
    7 Feb 2014, 05:24 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Rock:

     

    Options close at 4.00 pm, so after market does not count.
    7 Feb 2014, 08:24 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Here is an article about how after hours affect options exercise on expiration Fridays. Seems like the buyer has 1.5 hours to make a decision to exercise after hours.

     

    http://bit.ly/1fHeDy0
    7 Feb 2014, 11:11 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Wow,

     

    Thanks. Very Interesting.

     

    My options were not exercised, so I guess the Epson did not want to pay me $60 a share.
    7 Feb 2014, 11:17 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1913) | Send Message
     
    Do you find out right away if your options were exercised/shares called away? or does it take a business day or two?

     

    I've sold covered calls in the past where the underlying shares got called away, and I swear the transaction was recorded a day or two after the options expired. Maybe i'm hallucinating lol
    8 Feb 2014, 12:27 AM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    Also, monthly options have saturday expirations, but the option itself will not be tradeable after Friday 4pm. So one carries after market risk all the way through Saturday.

     

    http://bit.ly/1lILgD1

     

    It seems that after 2015, this will be moved back to Friday to match weekly options.
    8 Feb 2014, 12:44 AM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    These were weekly options.

     

    My trading account shows that these options expired.
    8 Feb 2014, 02:53 PM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
     
    Sweet trade RJL! I tried this myself with a higher strike, but nobody would take my offer. I'll also look to be doing this next week if SVXY rises.
    8 Feb 2014, 06:02 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    Thanks.

     

    I may try again next week (if SVXY does not move Monday morning, then try the $65 strike for about 40 cents or so).

     

    Just a way to add to my bankroll.
    8 Feb 2014, 06:16 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Nice. So close.
    7 Feb 2014, 05:06 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    well...this friday is a LOT better than last friday.!

     

    and thanks for the patience in here, of the volatility wonks.
    It's a new world for me, but it is a fascinating end of the investment world. I'm going to spend a bit more bedtime reading time on the CBOE site.
    7 Feb 2014, 05:07 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Read about put-call parity.
    7 Feb 2014, 05:09 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    @ VHT I will
    7 Feb 2014, 05:45 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    I like Khan academy for many reasons, social mobility/free education, new era of civilization. It might be bettered, but it is a successful new model of web2.0 education.
    http://bit.ly/1jlRwP9
    8 Feb 2014, 05:58 AM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    VIX is now trading at a 3.5 % premium to 10 day realized volatility. That takes a bit of the shine off of short vola. Cooper's VRP model could switch to buy vola on monday or tuesday. Vratio10sma is still buy vola.
    7 Feb 2014, 07:33 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I don't understand, can you elaborate. If vix is trading at premium, we should short and thats what we are doing right?
    7 Feb 2014, 07:47 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    So sorry. Woke up groggy with a cold. Vix is lower than realized vola by about 3.5%. Indicating an underpricing of risk in the options market.
    7 Feb 2014, 08:30 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Ikkyu, Where do you find the realized vola. I don't think realized vola matters here, because, for the last 10 days people were scared and bidding up put on spx. Now they realized world is not scarier, put price gone down, and hence the vix. So the current vix is lower than realized vola for 10 days. It looks to me natural phenomeon. It only tells me that vix is still high and we should continue to short. Am i missing anything ikkyu?
    8 Feb 2014, 08:41 AM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Hey VTH,
    I calculate realized volatility in excel, but what is given here follows very closely and can be compared to VIX:
    http://bit.ly/MOQA0f
    As explained in any entry level options trading book, you generally want to sell implied vola when it is attractively higher than realized and buy implied when it is trading at a significant discount to realized. That is a fundamental point for trading options and is why sellers usually win (because implied is usually higher).
    Cheers from Osaka,
    john
    8 Feb 2014, 09:24 AM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
     
    Long time ago, well before the inception of VIX futures people have been talking about selling volatility.

     

    http://amzn.to/1geAPAe

     

    I believe the author is with Asness now and he has both strong academic and trading background. There is a chapter in this well-written book talking about volatility premium. Different theories of why VIX>realized vol and what people are doing to "harvest" this gap.

     

    There was an even older paper from Atlanta Fed investigating the risk and profit of simple Vol-selling strategies.

     

    http://bit.ly/1geAPAg

     

    I guess the return profile and market timing would be similar to what this group is doing by long SVXY or short VXX.

     

    The information in those option based vol-selling strategies may help us better understand the market and refine our algorithms.

     

    Have a nice weekend!
    8 Feb 2014, 11:44 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Hi Ikkyu. Thanks. Yes, selling volatility is always profitable and thats why we are buying svxy in this group. I have couple of questions

     

    1. The S&P index volatility ( VIX ) is forward looking ( 30day ) volatility. The realized volatility(SPY) is based on the option price traded ( as opposed to, for VIX, they take the mid of bid-ask prices to calculate ). Can that be a reason you see the realized vol is little bit higher than the VIX.

     

    2. And, also, on SPY, the option traders have to account for the dividend if its exercised, and hence add the dividend premium to the option price, and thereby increasing the volatility premium. Can you give us your sense on that.

     

    3. As you said above ( the VIX is trading 3.5% lower than realized vol ), do you think there is an arbitrage opportunity between SPX options and SPY options?
    And, also, are you suggesting the VIX has to move up to meet the realized vol?
    8 Feb 2014, 12:41 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Windwine, Thanks for the nice links.
    8 Feb 2014, 12:43 PM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
     
    Ikkyu, my take on Cooper's VRP model (the #4 method in his paper) is to buy XIV if the 5 day average of VIX minus the 5 day average of the 10 day historical volatility (HV10) is >0, otherwise buy VXX. By my calculation, this has fallen to 0.00 (both 18.60) as of Friday's close. It went negative on June 25th last year, turning positive on July 8th and you would have lost money following the signal.

     

    I believe the idea is that when HV10 is greater than the VIX, the VIX will probably follow upward. Normally, VIX is 4 points of so over HV10.
    8 Feb 2014, 05:55 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Those are good resources to understand the volatility risk premium. I would also recommend Jared Woodward's piece on the subject (though its short): http://amzn.to/1ch7T7X

     

    I think Windwine is right: everyone here is implicit targeting this effect, but looking at it based on trendiness or mean reversion.
    8 Feb 2014, 08:31 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Hey VTH,

     

    Hope your doing well.

     

    With respect to your points,
    1.) As Windwine pointed out, most people see this pervasive premium as a "risk premium" and not a market inefficiency. There is 30 days difference, but the correlation is historically so high that realized vola is the most important factor. Starting on Friday we get the 10 day implied futures.... yeah! Then we have more info to process.

     

    2.) VIX is based on SPX, not SPY. There is no dividend for SPX.

     

    3.) I would call it more of a tendency or tailwind. 3.5% isn't huge, but it gives buyers an edge (like those enjoyed by the house).

     

    Does that make sense?

     

    Cheers from Osaka...

     

    john
    8 Feb 2014, 08:40 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Hey Darryl!

     

    Glad you are running these. Let's compare notes.

     

    You are right. The call is based on the five day average (median not mean) of VIX minus realized. I currently have .755 for that reading. My last "buy" signal was from 10/16/13-10/23/13. I am

     

    So are numbers are off a bit. Are you using median rather than mean? He explained that somewhere on the web.

     

    Cheers!

     

    john
    8 Feb 2014, 08:48 PM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
     
    Hey John - greetings to Japan. I am using mean and Ivolatility.com for HV10. I believe you said you calculate your own HV10. This and the vratio10 will be interesting to watch next week.

     

    Darryl
    8 Feb 2014, 10:43 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Hey Darryl...

     

    Greetings to you.

     

    I think our signals will be close, but won't line up perfectly.

     

    I run the VRP, the Vratio10sma, and a three month relative strength model of EDV/ZIV. The latter two flashed signal changes for the first time in a long time last week. As you say, VRP might signal next week. Maybe this is a "regime change".

     

    Cheers!

     

    john
    8 Feb 2014, 10:53 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » ikkyu - What positions are you currently in following Coopers VRP model?
    7 Feb 2014, 07:42 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    I have been trading a hybrid strategy. I was long vola from Tuesday via the March contract, but got stopped out on Thursday. The three signals I follow are conflicted, which could signal a transitional period. Last week was the first buy signal for Vratio10sma since 10/10/11! That was a hell of a run.
    7 Feb 2014, 07:51 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    A 329% run to be exact. Wish I had been with it from the start.
    7 Feb 2014, 07:58 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Ikkyu - First buy signal you mean to go Long Volatility, since 10/10/11? So by that signal you would have stayed short Vol 10/10/11 until now? Maybe I am confused.

     

    329% run from 10/10/11 nice. The system I use had buy signal Nov 16th 2011 for a 395% profit if you held. The system usually has you trade 3-7 times or cycles per year, more trades during QE then outside of QE. Here are the returns.
    2011-101%
    2012-283%
    2013-226%

     

    Those compound nicely :) I have no idea if it will work this well going forward, I can only hope it even works half as well and that I have the courage to jump in and follow it.

     

    Had I followed the system to a T, I would have confirmed Monday as the "bottom indicator" on Wednesday and been long 50% then, another 25% Thursday and the last 25% today when all 3 signals went green. Instead I followed the herd and was only 50% in before the jobs number.
    7 Feb 2014, 08:58 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    "Ikkyu - First buy signal you mean to go Long Volatility, since 10/10/11? So by that signal you would have stayed short Vol 10/10/11 until now? Maybe I am confused."

     

    Yes, that's right. I should mention Cooper uses a median based moving average for Vratio 10sma.

     

    Your signals sound impressive. I think you should trade them.
    7 Feb 2014, 09:18 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » LOL! I am doing my best to trade them but QE taper has never happened before so I must hedge a smidge and miss a little of the gains to resist potential losses. I am close to a personal goal which is making me, all thing being relative, risk averse. Have a good weekend!
    7 Feb 2014, 09:24 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Rock and RJL,

     

    Yes, going forward we have to consider for unknown tail risk. I was reading about SKEW. We should come up with a plan next time to go long vix ( best i can think of is uvxy calls ) when we are shorting the svxy.

     

    Lets brainstorm what are our options.
    8 Feb 2014, 08:55 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I meant when we short vix ( long svxy ) in the above comment.
    8 Feb 2014, 01:03 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    question for next week, where do you guys see this going?

     

    Watching Art Cashin yesterday, http://cnb.cx/1bzxFUG , his feeling is cautious, in that there is still a lot of fear out there.

     

    btw , what's the personal goal Rock?
    8 Feb 2014, 01:11 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    good idea VTH, the action in UVXY the week before last was quite remarkable.

     

    Do you have a view on where the current run for SVXY could stop and when?

     

    Are people still assuming 12 is the base for VIX, or are we in a new era, as QE is tapered? Will the base and range move up? e.g. VIX peaked above 20 this weak rather than stopping around 18.
    I've posted this already, but Art Cashin yesterday was interesting, talking about fear, and possible corrections, almost like this could have gone either way yesterday, and that there is still a lot of fear out there. http://cnb.cx/1bzxFUG
    8 Feb 2014, 01:15 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    I see VIX plummeting whole week next week and touch 70 svxy sooner. Economy has to collapsing for market to give up, and its not, and there are so many positives. There are no headline news for until march NFP ( besides Yellen testimony ), and hence I will continue to keep it until end of feb.
    8 Feb 2014, 01:28 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    Thanks VHT. That would be significant in my house/portfolio. You see $70 as the short term ceiling?
    8 Feb 2014, 02:06 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
     
    VTH:

     

    The only problem with UVXY calls is the contango that may exist (absent contango, this is a good option).

     

    Alternatively, we can just buy some calls on the VIX itself.

     

    Either one could be used as part of insurance to your portfolio.
    8 Feb 2014, 03:01 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    VIX calls as cheap insurance (when VIX is low) is going to be a permanent part of my strategy going forward. The calls I had (that I sold way too early) provided a phenomenal hedge to my XIV position. The only question will be optimizing the percentage of my portfolio to allocate to protection. If we see a lot of chop this year I am thinking this strategy will have both protective benefits, e.g. allowing a less painful exit from the XIV position, and alternately provide additional upside by selling when the VIX is 'most likely' maxing out.

     

    I do have one UVXY put that I bought to see how it performs and my impressions are they are expensive and have an incredible amount of decay. Maybe VIX calls and puts suit my trading personality better as I am overall more comfortable with these instruments. What I really need to do is find some time to study options in depth, and soon. Learning by doing with money on the line can be an expensive way to learn when a $20 book might have served the same purpose!
    8 Feb 2014, 05:15 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    James - I do not see this as the new era yet because VIX topped at the same spot as the last three big spikes. We still have a strong resistance ceiling in the low 20's. With how hard and fast the VIX cratered I am not seeing 15 as the new low for example - I really couldn't believe we were testing the low 15's on Friday, just a few short days after the highs, wow this moves fast.

     

    Also, you are completely correct this could have easily gone the other way yesterday. Had we broke lower, it could have become a self-feeding decline as longs bailed and more shorts piled in. Instead all the shorts positioned for a bad number (which we got! That was a bad number imo!) had to cover instead, feeding the uptrend of buyers trying to get back in before they missed the boat. Quite simply, we could have fallen just as far the other way on the exact same jobs number (something to ponder). Instead we hat a witch-hat bottom and a steady climb all day with an utter collapse in volatility.
    8 Feb 2014, 05:22 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Let me see, if I can do in the next one. The idea is, expiration should be brief ( so that you don't pay a lot of time premium ) and well out of money, so that we buy enough protection. This is strictly for the scenario we had gone through this time, where we thought 15-17 is top vix during QE and dipped our toes only to take it back. What I like, UVXY is 2x levered, and you spent so little to cover a huge tail risk when you short vola. I will post next when I do it.
    8 Feb 2014, 08:37 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Except is isn't cheap. It is among the most expensive forms of insurance in the financial markets. VXX options are cheaper than VIX options.
    8 Feb 2014, 08:52 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Except its a true insurance in a black swan like last week as its 2X. I wouldn't discount the premium as high, may be thats what we need as we are entering into non-QE era.
    8 Feb 2014, 09:25 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Thanks VTH. I will be interested to see you strategy! I was thinking we actually wanted more time to make the trade work as the shorter the expiration the more likely we are end up with worthless options. What you are saying with UVXY is we would only need half the options to hedge the same position since it's 2x - I suppose this would offset some of the extra premium inherent due to the higher volatility of the option.

     

    Ikkyu - you are saying to use VXX as the hedge and not VIX options? That would be even better since there is a more direct inverse relationship to XIV/SVXY with VXX - if it is cheaper too than much better. Why is it cheaper though I wonder? I am extremely interested in what the optimal hedging strategy for this trade if you have one - I think we might need it this year more than ever! I see Rock posted a new article specifically related to options so a timely topic indeed!
    8 Feb 2014, 10:05 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    VXX options are cheaper, but they are still amongst the most expensive index options out there. It is cheaper because of lower implied volatility: the magic behind this whole show. The spreads are also better than with SVXY and UVXY.

     

    I don't hedge myself. I use stop-losses. If I wanted to limit downside risk with options, i would just make a pure option play and skip the underlying. For example, just buy SVXY calls or call spreads. A protective put and a long call have the same shaped risk diagram.

     

    cheers...
    8 Feb 2014, 10:25 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    "the magic behind this whole show" I like that! I just realized that by even using options we are at the mercy of the very force we are using to generate all of our gains to begin with. A bit of irony to use decaying options as a hedge against our play in harvesting that very decay. Need to ponder that... I did just write a post with some ideas on Rock's new article - one of the ideas was to use VXX puts as the play with a small portion of your portfolio and just hold cash with the rest to limit downside clearly so funny you should mention that exact thing here! Thanks again!
    8 Feb 2014, 10:42 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    "I just realized that by even using options we are at the mercy of the very force we are using to generate all of our gains to begin with."

     

    There is an EPIPHANY my friend!
    8 Feb 2014, 10:55 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    A general question to the ETP-trading folks... do you think risk has increased for you now that VIX futures trade twice as long?

     

    I wonder if gap risk has gone up.

     

    Watching futures go crazy on NFP yesterday got me thinking about that...
    7 Feb 2014, 09:19 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Is it been constantly increasing or long futures increase only during uncertain times? Increase in vix futures volume ( liquidity) is only good for VIX ETP products.
    8 Feb 2014, 08:50 AM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    With the extended trading hours, futures are trading nearly twice the length of time per day as ETPs . To me that makes it scarier to trade ETPs. It seems like that could exacerbate gap risk. I love the Europe session for futures because it is comparatively quite, still has good fills, oh... and I am still awake.
    8 Feb 2014, 09:33 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    it doesn't really matter, as after-hours trading is more of anticipatory. It has to move in-line when the market starts trading. It can't materially impact the ETPs.
    8 Feb 2014, 01:32 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Ding ding! VTH nailed it. None of it matters (VIX after US markets close) because once the bell is hit in the US and the real traders hit the market - that is what matters. Pre markets mean next to nothing, after markets mean next to nothing...and I would argue NAV vs ETF price mean next to nothing. When the bell rings the big dogs eat - they set the price. When the bell rings to close - the mice eat.....and who cares what the F the mice do!
    8 Feb 2014, 11:56 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    The premarket "mice" gapped you all 2.6% on Friday.
    9 Feb 2014, 12:28 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » So what? The EOD price was 6% so the mice were only a smidge off. If we were down 5% premarket I would have bought hand over fist at the open if i could get it before the big dogs set the correct price. I look at it as the big dogs held us at 2.6% at the open and then shot us higher because the mice were low. If the open price is wrong the big dogs smack it right fairly quickly. An air gun can't out match a bazooka. I don't understand why people pretend like it can.
    9 Feb 2014, 11:39 AM Reply Like
  • William Andrew
    , contributor
    Comments (53) | Send Message
     
    Is anybody using trailing stops? I'm thinking 5% might be wise?
    8 Feb 2014, 02:31 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    William - this is something I am thinking a lot about. We can swing 1% in a matter of minutes, 2% is common intra-day as well. Watching this all day I still am not seeing a good way to manage that risk because it's easy to be stopped out and have it immediately whip right back up and over where you started the day. My original best trading plan was a maximum drawdown point where I would sell my position- but even passing that point I didn't want to sell because 'what if that was the bottom'? I'm having a lot of frustration coming up with sound risk management. It seems like scaling into and out of cash is the best protection - perhaps tiered trailing stops where you sell blocks of shares as each tier is hit? Interested in others ideas on the stops idea as well.
    8 Feb 2014, 06:05 PM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
     
    William, I did this once and my stop was about 5% although I actually used a trailing point amount. This was at a point when I felt that VIX had run up enough - before we had Rock. In this one case I was able to buy it back lower. Usually I try to set a sell limit based on closeness to the upper Bollinger band. I have observed that whenever XIV/SVXY has a day totally above the upper Bollinger band, sideways or down follows. With the way these things move, it's really tough to know how to avoid the big draw downs.
    8 Feb 2014, 06:30 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    I always have stops. I only trade volatility.

     

    This guy has solid approach to trailing stops:
    http://seekingalpha.co...
    8 Feb 2014, 08:55 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
     
    Thank you ikkyu - I just researched the chandelier concept and used stockcharts.com to chart it out:

     

    http://bit.ly/1bHV7CA

     

    The link demonstrates the default chandelier stop would have exited XIV on in the 33.33 range on this recent plunge. It also would have worked in October. Just as an observation - then buying back when RSI dipped into the oversold area would have provided a lot of upside in both cases (though I would trade off Rock's signals as RSI could get really oversold in a big plunge).

     

    Are there any specific charts people are using to keep an eye on SVXY/XIV during the day that provide decent signals? I understand RSI is a big indicator but I never know what parameters to use. Another area where I need a lot of education (the other being options).
    8 Feb 2014, 09:44 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    No worries. Glad it was useful.

     

    Yes, I like the default, which is at 3 ATR better than his suggestion of 2.5. ZIV looks even better with that style stop. Trade it with 2x leverage and you would smoke the trade with SVXY for the same risk.
    8 Feb 2014, 10:30 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    This is a good overview of last week's action with some proprietary indicators mixed in:
    http://bit.ly/1kqweAj
    8 Feb 2014, 11:19 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » The only stop I would use in my system is for a black swann event if I decided to try and overstay my welcome on my long play. And I would have my stop at about 10%. Stops in this system are only to protect gains you already have or a black swann, if you feel you need a stop then you should sell SVXY. That is how I play it.
    9 Feb 2014, 12:00 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » All – The system I use is sound, it was operator error on my end. I jumped in to early (and shouldn’t have been all in until I hit the 90%+ certainty rate) and that caused me to go in at the bottom too late. I listened to all the “wait until jobs number” scare mongers on here that said the world was ending. I didn’t play into the fear but I allowed it to make me passive when I knew I should be active. The proper play was 50% in Wednesday, 75%+ Thursday and all in Friday morning after the jobs number was above 100k. If it was below 100k, scale back to 50% or less and look for potential new bottom. Live and learn.

     

    My personal goal is to be free to trade full time. The goal is somewhat close to my reach that has also caused me to be a little more cautious.

     

    Art Cashin is a great guy but he leaves himself wiggle room constantly, he doesn’t commit one way very often. The system I use predicts more accurately than Art Cashin which way the market goes. Money managers think it is going higher so I like their odds. I recommend you all read Peter F. Way religiously if you want to see how to time the markets better. His insider tidbits are treasure troves.
    http://seekingalpha.co...

     

    Yes we are still in the 12-20 range, nothing has changed and if you look at the data it sinks up almost dead nuts with other past cycle dips. I might write a quickie post tomorrow on what I see. I might not because I don’t want to jinx it. :) I am in VTH camp on where SVXY goes just not as fast as he thinks.

     

    And Cashin is wrong about going either way Friday after jobs number, and I hate to sound arrogant but it wasn’t even close we were going to go higher and chances were much higher….Because the number coming off of the low last month number – anything over 100k gives you an 80% chance of contango kicking back in – someone WAY smarter than me figured the stats out and notified me of that on Friday. Trust me he is almost always right. A 20% chance TOPS we were going lower on Friday with that jobs report.

     

    Long Vol options you have to really time them top notch to actually get that protection. Like say you buy VXX calls next week…you better hope the market tanks by Feb 18th roll otherwise POOF, there goes a big chunk of your hedge as we roll forward futures up.
    9 Feb 2014, 12:06 AM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
     
    Nice post.

     

    I really want to see your strategy algorithm that position-sizes based on job numbers.

     

    I am completely agnostic. But my guess is these are pre-rumbles for something bigger. But it could take months to come. Or it could be next week.

     

    Cheers,

     

    john
    9 Feb 2014, 12:27 AM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message
     
    I checked out Peter Way, great guy! Are there any particular articles regarding market timing that you can point to by him that would be good reads?
    12 Feb 2014, 04:51 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » RV - My intention was for people to learn some of the insider nuggets he puts in most of his articles. How the big boys think and work. The market timing was a comment that his calls are incredibly accurate. You can make good money just trading off of his advice. If you like the results and want even more then you can buy his service. He seems like a very nice man and a top notch investor. It can only help by reading him.
    12 Feb 2014, 07:49 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Is VIX 15 the new 12?
    11 Feb 2014, 09:56 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » Seppo - When the new VIX range happens you will notice it. It doesn't sneak up on you it hits you over the head! The long end of the curve will rise significantly along with the short end of the curve. The reason I knew with 100% certainty we were still in the 12-20 range (for now) is on some of the days last week the long end actually went DOWN on a VIX rising day!! That almost never happens and it certainly doesn't happen in a new normal adjustment period.
    11 Feb 2014, 12:04 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Np, wait until end of this week.
    11 Feb 2014, 10:26 AM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    http://seekingalpha.co...

     

    Did you all see that, could pause taper or increase QE, VIX is hitting 12's this week....who wants to bet against me? :)
    11 Feb 2014, 11:58 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » VTH - Spot VIX at the close in the 12's by Friday. It usually takes ~ 7 trading days to close in 12's coming off a high after falling below VIX 15....but with Debt ceiling gone you may be right so I will pass on that bet saying I think you will lose it VTH but not certain enough to bet you :)

     

    Once again the party of fiscal responsibility proves they have none...
    http://fxn.ws/1jtdShI

     

    We are likley to have "deflation" as the Fed thinks of it, so we are likely to see an increase in QE before the end of the year.
    11 Feb 2014, 12:19 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Next week is fine with me too, i can't wait for the contracts sold at 16-19 to be bought back at 13-14. ( feb 18 is the futures roll )
    11 Feb 2014, 12:52 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    would that see SVXY at $70?

     

    question, dow up 170, VIX down 6.4%, full contango
    in action, and SVXY up 4%. Is there some mismatch or
    lag in the price action?
    11 Feb 2014, 12:53 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
     
    Svxy will see 70.
    11 Feb 2014, 01:06 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
     
    Author’s reply » I see how you guys are....crickets on up days and posts on top of posts on the down days! LOL

     

    If VIX spot and VIX1 closes below 15 we are looking really good for a soft VIX landing the next few weeks. 15 is a vital pivot point.
    11 Feb 2014, 12:10 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
     
    Now if one could trade that anxiety index :)
    11 Feb 2014, 12:34 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    well, i took an SVXY position last week at 5% of my portfolio.

     

    it's now grown to 12%. This is a Grrrreat thing, but ...Yikes, success/luck can be worrying. Hence the silence!
    11 Feb 2014, 01:54 PM Reply Like
  • aeovian
    , contributor
    Comments (8) | Send Message
     
    I broke down and hedged pre-debt ceiling agreement with VIX $18 calls
    11 Feb 2014, 08:22 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    hmm, not a bad idea. What strike date?
    12 Feb 2014, 06:15 AM Reply Like
  • aeovian
    , contributor
    Comments (8) | Send Message
     
    I bought the Feb expiration ones with less than 1% of my trading portfolio. Now down 67%! (made 4.5x that much on my long SVXY position today though)
    13 Feb 2014, 01:17 AM Reply Like
  • memshu
    , contributor
    Comments (622) | Send Message
     
    rock
    i agree, its down from here
    but...
    so why is uvxy down 8%, vxx down 4% and... svxy up 1%?
    11 Feb 2014, 01:51 PM Reply Like
  • jamesingram32
    , contributor
    Comments (579) | Send Message
     
    memshu, I have/had the same question, VIX is now down 7.15%, SVXY up 4.5%. Is there just a time lag? Is there a difference between NAV and SVXY what will be sorted after hours? we shall see...
    11 Feb 2014, 02:58 PM Reply Like
  • RVijay007
    , contributor
    Comments (56) | Send Message