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dtatu
143 posts
msg #131662
- Ignore dtatu
modified

10/1/2016 1:43:59 PM

@gmg733
following your suggestion:

example for Oct 18 Options ( let's take a 5 points spread)
Sell 11call at 4.70
Buy 16call(ATM) at 1.2
Credit 3.5 ( risk is 1.5/5= 30%) at 16 on exp.

The problem I have with this spread is:
1. buying ATM calls , which means I pay 100% time value ( I hate this, as Theta is horribly against me)
2. buying a much more expensive call than I sell !( implied vol of 11 call=around 65% whereas Imp vol of 16 call is 91% ! )
3. The probability of this spread making money( being below 14.5 ( break even point) at the exp) , according to the quotes is only 28 %( delta of 14.5put with VIX Oct contract at 16 , today).

All these, tell me that the odds of a favorable outcome of this spread are not so good, imho.
Did I make a mistake somewhere?

Kevin_in_GA
4,599 posts
msg #131663
- Ignore Kevin_in_GA

10/1/2016 1:54:19 PM

I just wonder how much the SS algorithm is being effected by the FED propping the market up for the election.

@pthomas: These filters were based on VIX data from 9/1/2011 through 9/1/2016 - they are not based on any Fed theory regarding the upcoming election.

I am sharing this system and information freely to everyone - however, if this thread even begins to smell of politics I will terminate it. Save the political discourse and conspiracy theories for other forums, as they do not belong here.

BarTune1
441 posts
msg #131664
- Ignore BarTune1
modified

10/1/2016 1:54:34 PM

@gmg733

I agree with your last analysis. Selling a deep in the money put would be a decent proxy on a VIX long signal. I'm not so certain that it would be necessary to buy an at the money put. I realize it provides protection on a downside move, but you are going to be paying all premium at that point. My experience tells me that the most significant risk would be an upside spike in the VIX rather than any downside spike. I would think this risk would even be smaller when - presumably - you are trying to play the VIX long on the assumption that it already has experienced a significant pullback.

Kevin_in_GA
4,599 posts
msg #131665
- Ignore Kevin_in_GA

10/1/2016 2:01:29 PM

UPDATED SIGNAL REPORT BASED ON CONSENSUS OF OTHER MULTISYSTEM USERS:

SIGNALS FOR MONDAY 10/3/16

A NEW LONG BUY SIGNAL WAS TRIGGERED FROM VIX LONG SIGNAL #9.

OPEN TRADES	Date Opened	^VIX Opening Value	Date Closed	^VIX Closing Value	Net Gain/Loss (%)
LONG ^VIX	9/27/2016	13.36	- - - - -	13.29	-0.52%
LONG ^VIX	9/28/2016	12.90	- - - - -	13.29	+3.02%

CLOSED TRADES	Date Opened	^VIX Opening Value	Date Closed	^VIX Closing Value	Net Gain/Loss (%)
SHORT^VIX	8/29/2016	14.07	9/8/2016	11.76	+16.42%
LONG ^VIX	9/6/2016	12.54	9/12/2016	20.13	+61.66%
LONG ^VIX	9/9/2016	12.44	9/12/2016	20.13	+60.37%
LONG ^VIX	9/13/2016	15.98	9/14/2016	17.63	+10.32%
SHORT ^VIX	9/12/2016	20.13	9/19/2016	15.16	+24.61%
SHORT ^VIX	9/9/2016	12.52	9/22/16	13.41	-7.28%
SHORT ^VIX	9/12/2016	20.13	9/22/16	13.41	+33.32%
SHORT ^VIX	9/14/2016	17.63	9/23/16	12.02	+31.74%

pthomas215
1,251 posts
msg #131666
- Ignore pthomas215

10/1/2016 2:48:04 PM

kevin, just looking for a solution on why the long vix signal has not worked recently. didnt mean to offend brother !

gmg733
788 posts
msg #131667
- Ignore gmg733
modified

10/1/2016 3:37:27 PM

@dtatu

I don't sell near dated options due to gamma risk. So I'm looking at November options as a start.

The ATM option is defining your risk. That is why it is in there. I trade naked calls and puts all the time, just not in the VIX. Theta according to TOS is about the same. Defined risk trades synthetically get your delta directional. This is a delta play. The system triggers a VIX long signal. Right now there are two signals. If you sell the put spread at a risk/reward of 1:1, say buy the Nov 13.5 and sell the Nov 16 put your max profit is 115.00 and your risk is 135.00. I do not play to hold to expiration. On spreads I take my money off at 40-50% profit. If the VIX pops you should be out quickly.

In my example above, I show the implied vol for the 16 @ 60% and for the 13.5 @ 54% on TOS. Again, I'm not looking at calls right now since the VIX is around 13 and we have VIX long signals. But I would be selling a more expensive put in this case.

Overall here are the numbers on the trade: Probability of profit is 31%, Theta is -.27, Delta is around 38

Again, I'm making the assumption the VIX will pop based upon Kevin's system. So the probability of profit at 31% does not bother me. And I don't plan on hold to expiration. Only suckers hold credit spreads to expiry.

@BarTune1

As I mentioned above, the long instrument is just defining the risk. Thinking about it, since vol is mean reverting it may make sense to not have the long instrument. I by no means have this figured out. And yes I am assuming VIX is at a low. But again, I'm only looking for an alternative for Kevin's system.

I know that selling ITM call spreads on VXX has been profitable. The natural drag and the fact the defined risk is a delta play coupled with favorable theta it is like an ATM machine.

Kevin_in_GA
4,599 posts
msg #131668
- Ignore Kevin_in_GA

10/1/2016 3:53:39 PM

kevin, just looking for a solution on why the long vix signal has not worked recently. Didn't mean to offend brother

No offense taken. I know that emotions are running high for this election, and I am making a conscious effort to prevent this system from being affected by that. Trading should be apolitical and emotionless - any other approach leads to poorer performance.

As to the long VIX signals - I would respectfully disagree that there are issues. There have been three closed long VIX trades, all profitable, and two open trades with one profitable and the other down less than 1%. I had much more concern about the last three short VIX signals, which were deep in the red for a while before closing profitably.

mahkoh
1,065 posts
msg #131669
- Ignore mahkoh

10/1/2016 4:21:19 PM

dtatu
14 posts
msg #131653
- Ignore dtatu 10/1/2016 9:52:15 AM

mahkoh,
re.For long signals sell deep in the money ^VIX calls 2 - 3 weeks out. The premium involved is usually over 70 % so you have a big time decay advantage:

I also noticed that, actually, VIX Options have their underlying the VIX Futures and not VIX spot: if you look at the Oct 18 expiration, you will notice that the option which has a delta of 50% ( the At The Money) is the 16 Call ( the price of the Oct futures) and not the 13.5 call ( the price of the Vix index).
This means that : VIX index has options based on the price of the VIX Futures ? that's really confusing ( like many other things in VIX).

In conclusion, your plan to sell deep in the money options for their High Time premium seems to have no validity, as , for example, Oct 18 10 call goes for 15.50 bid-15.90 ask ( underlying Oct VIX future at 15.95) which is actually at a discount, with Zero Time premium in it and 100% Intrinsic value!);
this would make the case for using deep in the money options to mimic the VIX futures (not the index, though);
but then ,why bother with options instead of going long the Futures?

******************

dtatu, thanks for pointing this out, I hadn't noticed this yet but it makes sense. Check this article, specifically point 5:

https://sixfigureinvesting.com/2010/01/trading-vix-options/

And you were correct on another thing, I did indeed mean to sell calls upon a short signal, not a long.

Also interesting:

http://www.vixstrategies.com/strategy/

Where they state that "the only way to directly gain exposure to spot VIX is through S&P 500 index options". Possibly that is why SPXS is the most correlated asset in this filter?

shillllihs
6,093 posts
msg #131670
- Ignore shillllihs

10/1/2016 4:45:33 PM

Check to see how Vxx/Xiv perform in times of backwardation. It could be very telling
if Vxx outperforms Xiv.

dtatu
143 posts
msg #131676
- Ignore dtatu
modified

10/2/2016 11:04:08 AM

@gmg733

Totally agree with your arguments ( I used "options 2-3 weeks out of the other post (mahkoh),without realizing that you did not specify the duration of options you use)
- I also agree with taking profits quickly( I usually close half at 50% ,then the other half at 75% profits)

Imho, the only reasonable instruments to use for this system are options spreads or futures spreads or other hedged instruments, because, as Kevin says, those open drawdowns already seen in 2 short trades are actually nothing, compared to the worst case scenarios, seen in the past( take a look at those Wild , fast swings in 2008, 2011 : without stops you could be out of money just by being once only on the wrong side of the market)

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