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windwine

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  • ZIV Versus The Volatility ETP Competition [View article]
    The real time SPVXSP +7.74%, SPVXMP +1.5%. Even more amazing.
    Jul 17 05:45 PM | Likes Like |Link to Comment
  • ZIV Versus The Volatility ETP Competition [View article]
    It is not meaningful to compare ZIV with XIV only based on returns otherwise you can simply say UPRO is much better compared to SPY. But in essence UPRO is simply a daily re-balanced 3X SPY.

    Simply put, VIX futures, like most commodity futures, have a concave term structure. ZIV has less tailwind from roll yield but it also has much less volatility. To make a fair comparison you should at least look at Sharpe ratio or use leverage on ZIV to achieve similar volatility of XIV. From time to time you will find ZIV to have a much better Sharpe ratio than XIV like Jan-Apr this year. Meanwhile, ZIV was not the choice for you in 2009-2010.

    Nothing is carved in stone to say which security is the choice for life. Sometimes even UPRO or SSO would beat those short vol products easily.
    Jul 16 10:32 PM | 6 Likes Like |Link to Comment
  • New SVXY Strategy [View instapost]
    "All in or nothing!" The Adidas world cup campaign :-)

    Glad to have you back and thanks Macro.
    Jun 30 11:45 AM | 1 Like Like |Link to Comment
  • The Quant Strategy That Returned 36% YTD With ETPs [View article]
    First of all, please do not feel offended by my "constant" criticisms of volatility related strategies posted on SA. I am inclined to be doubtful as my work is related to verification and risk control. It is kind of my second nature to find the bugs in algorithms. Secondly, I like the posts and papers with details of the algos and the reasoning behind the algos. I have learnt a lot from these papers/posts and I hope my verification results could also benefit all of us at least from the risk control side.

    Now back to business. I have changed my program as you suggested and it did not change the results by much. The new results assumes a daily 3*TLT (1+3*(TLT(i)/TLT(i-1)-1)) and I use the adjusted price from Yahoo.

    yearly.returns
    2005-12-30 0.04322932
    2006-12-29 0.30786024
    2007-12-28 -0.05389059
    2008-12-26 0.08974064
    2009-12-31 -0.10205045
    2010-12-31 0.79806876
    2011-12-30 0.48352654
    2012-12-28 0.60090906
    2013-12-27 0.12496680
    2014-06-10 0.32125743

    monthly.returns
    2005-12-30 0.0432293169
    2006-01-27 0.0181023355
    2006-02-24 0.0557848492
    2006-03-31 -0.0542565496
    2006-04-28 -0.0348919728
    2006-05-26 -0.0661711112
    2006-06-30 -0.0014890177
    2006-07-28 0.0297663579
    2006-08-25 0.0947670110
    2006-09-29 0.0943379338
    2006-10-27 0.1054655750
    2006-11-24 0.0586230975
    2006-12-29 -0.0097915851
    2007-01-26 0.0143955970
    2007-02-23 0.0912403717
    2007-03-30 -0.0963625972
    2007-04-27 0.0494767732
    2007-05-25 -0.0371593059
    2007-06-29 -0.0656281255
    2007-07-27 -0.0250733761
    2007-08-31 -0.0659782527
    2007-09-28 0.0679198182
    2007-10-26 0.0229769716
    2007-11-30 0.0007526469
    2007-12-28 0.0062645808
    2008-01-25 0.0109831227
    2008-02-29 -0.0307209053
    2008-03-28 0.0122440467
    2008-04-25 0.0449417925
    2008-05-30 0.0219294228
    2008-06-27 -0.0192243029
    2008-07-25 -0.0375001485
    2008-08-29 0.1160457251
    2008-09-26 -0.0880503094
    2008-10-31 -0.3219918465
    2008-11-28 0.1781307246
    2008-12-26 0.3405423156
    2009-01-30 -0.2531971218
    2009-02-27 -0.0585640348
    2009-03-27 0.0398296671
    2009-04-24 -0.0254568659
    2009-05-29 -0.0298565320
    Jun 20 12:27 PM | 3 Likes Like |Link to Comment
  • The Quant Strategy That Returned 36% YTD With ETPs [View article]
    Since TMF did not exist in 2007 I venture here to use 3*TLT weekly return as a proxy for TMF. And I think it is a good proxy as the 2014 YTD return is very close to what the author has achieved. I tested using the theoretical XIV value back to 12/20/2005 with exactly the same re-balance scheme as the author has proposed.

    yearly.returns
    2005-12-30 0.04325139
    2006-12-29 0.30631476
    2007-12-28 -0.05172118
    2008-12-26 0.09015665
    2009-12-31 -0.09685017
    2010-12-31 0.83408663
    2011-12-30 0.51324219
    2012-12-28 0.59234922
    2013-12-27 0.12452417
    2014-06-10 0.32026125

    In the pre-2010 era there were several big drawdowns as you can see from the monthly return table.

    monthly.returns
    2005-12-30 0.043251388
    2006-01-27 0.017935836
    2006-02-24 0.056072081
    2006-03-31 -0.054961110
    2006-04-28 -0.034733394
    2006-05-26 -0.066317277
    2006-06-30 -0.001727080
    2006-07-28 0.030292478
    2006-08-25 0.094151818
    2006-09-29 0.093749630
    2006-10-27 0.105488940
    2006-11-24 0.058903690
    2006-12-29 -0.009803483
    2007-01-26 0.014242867
    2007-02-23 0.091519736
    2007-03-30 -0.096514941
    2007-04-27 0.049594872
    2007-05-25 -0.037380229
    2007-06-29 -0.064901565
    2007-07-27 -0.025184709
    2007-08-31 -0.066511201
    2007-09-28 0.068054654
    2007-10-26 0.022174458
    2007-11-30 0.002007019
    2007-12-28 0.008061439
    2008-01-25 0.013125436
    2008-02-29 -0.028714776
    2008-03-28 0.012398271
    2008-04-25 0.044825170
    2008-05-30 0.023069373
    2008-06-27 -0.020111620
    2008-07-25 -0.036359845
    2008-08-29 0.116963603
    2008-09-26 -0.084288862
    2008-10-31 -0.322451408
    2008-11-28 0.176726541
    2008-12-26 0.329455464
    2009-01-30 -0.255922078
    2009-02-27 -0.052628956
    2009-03-27 0.045267113
    2009-04-24 -0.023060704
    2009-05-29 -0.031569379

    So do not get complacent by only looking at the past 4 years results.

    Nevertheless, it is still a good idea to mix bond with XIV to enhance your portfolio. In the 2013 VIX book from former Morgan Stanley VIX trading head he also mentioned mixing cash and short VIX futures to achieve equity-like returns with bond-like volatility. But his suggestion is only 10% allocation to short VIX futures positions. I think the most important thing for this idea is the proper choice of weights and leverages.
    Jun 20 09:41 AM | 1 Like Like |Link to Comment
  • The Quant Strategy That Returned 36% YTD With ETPs [View article]
    Great performance and congratulations.

    TMF is working for the past years as the short term interest rate is almost 0 and you can get pretty decent leverage on long-term treasury bond. But historically, short-term treasuries (~the cost of leverage) have much higher Sharpe ratio compared to long term treasuries. With the normalization of yield curves TMF could lose its lure in the future as basically you are long low Sharpe ratio assets and short high Sharpe ratio assets or at least you have to consider the yield curve in your portfolio compositions. I suspect the expense ratio of TMF would be much higher than current 0.95%.
    Jun 19 11:07 PM | Likes Like |Link to Comment
  • How UVXY And SVXY Would Have Reacted In 2008 And 2011 [View article]
    It all depends.

    Given the fact that there could be severe drawdown (>60%) for SVXY at least twice a decade judging from the past 8.5 year data, you may get in the market right before the crash and a buy-and-hold would definitely destroy your account. People may say there was the financial crisis and euro crisis in this limited sample period. There was also the massive QEs in that time span. If not for the QEs, I guess the return of SVXY in the post-2008 era might get halved.

    In essence, buy-and-hold SVXY is similar to write straddles on SP500. People have been doing that for a long time and to survive it you definitely need some market timing techniques or more importantly, LUCK.
    Jun 10 04:18 PM | 1 Like Like |Link to Comment
  • UVXY – HOW TO TAME THE MOST SAVAGE BEAST [View instapost]
    I particularly like Mr. Rhoads's plain explanation of VIX in his book.

    "
    The VIX is considered by many to be a gauge of fear and greed in the stock market. A more accurate description of what the VIX measures is the implied volatility that is being priced into S&P 500 index options. Through the use of a wide variety of option prices, the index offers an indication of 30-day implied volatility as priced by the S&P 500 index option market.

    Many traders and investors often ask why there appears to be an inverse relationship
    between the direction of stock prices and the VIX. The relationship may be broken down to
    the nature of purchasing options. When the market is under pressure, there is a net buying of
    put options, which will result in higher implied volatility. This rapid increase in demand for
    put options pushes the implied volatility for both put and call contracts higher; the reason
    behind this is called put-call parity.

    The VIX has historically had an inverse relationship with the S&P 500 index. The reason
    behind this inverse relationship relates to the type of option activity that occurs during
    bullish markets versus bearish markets. When markets rally, there is rarely a rush by
    investors to purchase call options. Therefore when the market is rising, there is rarely
    dramatically higher option purchasing versus options selling.
    When the S&P 500 comes under pressure, especially in very turbulent times, there is
    often a panic-like demand for put options. This demand for protection results in increased
    purchasing of put options. The result is a fast move higher in implied volatility for both S&P
    500 put and call options. This higher demand then results in an increase in implied volatility
    and finally a move higher in the VIX index.

    In summary, the VIX moves higher when there is more demand for S&P 500 options, this
    demand tends to increase when there is nervousness about the overall market. This concern
    about the market will result in increased demand for put options. Put-call parity is the reason
    the implied volatility of both types of options moves together. The result of this increased
    demand for puts is higher implied volatility indicated by the pricing of S&P 500 options and
    a move higher in the VIX.

    "
    Jun 10 03:58 PM | 1 Like Like |Link to Comment
  • A Once In Few Years Opportunity Presents Itself [View article]
    I guess when the trend is against you still want to sell XIV for a loss. It may take years to come back and with a stoploss you can have better outcomes.
    Jun 6 03:27 PM | Likes Like |Link to Comment
  • Make 40% A Year With Math And Without Shorting [View article]
    SPVXSP (~=VXX)

    2/26/2007 35982.33
    2/27/2007 44810.3

    you will see how much you can lose in one day. And it could only be worse if there were VXX in 1987.
    Jun 4 01:17 PM | Likes Like |Link to Comment
  • How UVXY And SVXY Would Have Reacted In 2008 And 2011 [View article]
    Recently ZIV has a much better Sharpe Ratio or risk-reward profile than SVXY. It was not the same case before though. Typically, to compare the performance of ZIV and SVXY you need to increase your allocation to ZIV to account for the difference in betas or market risks. A rather rough ratio using regression could be 2:1 for ZIV:SVXY. Then you could see how ZIV outperformed SVXY in the past 2 years.

    Curiously, despite the out-performance and interests in ZIV, its AUM and volume did not take off. I really wish to see more liquidity in ZIV/VXZ as they can be more useful than SVXY/VXX for certain situations.
    Jun 4 11:13 AM | Likes Like |Link to Comment
  • The Quest To Outperform The Market [View instapost]
    Hi Jay,

    Got it and thanks.
    May 29 04:09 PM | Likes Like |Link to Comment
  • The Quest To Outperform The Market [View instapost]
    Hi Jay,

    Thank you for posting your data online and congratulations on making big profits in the past few years. But when looking at the excel file I am a little bit confused.
    4/23/2014 32.15 -0.79 Sell
    4/24/2014 31.76 0.62
    4/25/2014 31.51 0.58 Buy
    4/28/2014 32.21 -0.79

    I guess you have to see the bias to flip signs to enter a trade. Therefore you should sell on 04/24 in stead of 04/23 and buy on 04/28 instead of 04/25? Thank you for your clarification.
    May 28 05:15 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Hi Vance,

    Thank you for all your fantastic work on your blog and this post. I guess there is no easy way to describe how the short covering might impact the overall environment of VIX futures, VIX options, SPX options and the SPX itself.

    Qualitatively, if there are big unfilled orders to cover short VIX future positions at the end of the day it could add great fear to the market and add pressure to the SPX itself. Similar things happened in 1987 when there were large (on the order of ~$billion if I recall correctly) unfilled S&P future short orders. The market dived the next morning and the S&P future fell more than the SPX index.

    It could also be possible that if one hedge fund becomes a major seller of VIX futures, just like what LTCM was doing in selling options in the 90s. When it becomes the "central bank" of volatility and other big players become aware of the positions we could see a big spike in VIX. If it were not for the Fed, we would have seen much higher volatility in 1998.

    It is possible that XIV/SVXY could become virtually worthless if a high vol environment persist for 1-2 years and the central banks run out of tricks. Therefore I do not think DCA or constant monthly investment in these vehicles are good ideas. You could make a lot of money for most of the time by averaging down, but a single bad bet could wipe out all your profit easily.



    May 19 10:15 PM | Likes Like |Link to Comment
  • UVXY & VIX 17 [View instapost]
    Nice article Rock!

    One more comment is that when you find UVXY hard to buy or you do not like the bid-ask spread you can always turn to VXX as it has better liquidity. Technically the effect of owning 20% of VXX is the same as 10% of UVXY in your account if you are doing a quick entry and exit. And if you are concerned about the weird behaviors happened to TVIX long time ago VXX is a "safer" choice. The big percentage gain of UVXY looks more attractive on paper but it is the same as long VXX with twice the asset allocation.
    Apr 14 02:42 PM | Likes Like |Link to Comment
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