Kevin_in_GA
4,599 posts
msg #132313
- Ignore Kevin_in_GA |
11/2/2016 2:27:09 PM
I think what is lacking in this system is taking the level of contango into account - I do not know how to do this in SS but I think it is important to look at the level of contango or backwardation when considering these signals.
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gmg733
788 posts
msg #132318
- Ignore gmg733
modified |
11/2/2016 3:22:45 PM
I don't think so Kevin. More applicable for futures calendar spreads when you are buying something against selling something.
Only way to play pure VIX is via options.
If you want 100 deltas plus or minus, structure a options trade to get you about 100 deltas.
Buy ATM calls or puts (long or short) x2 ish to get a delta total of 100. Theta not your friend.
Sell ATM call and long ATM put for short, sell ATM put and long ATM call for long. Negates theta, risk on other leg of the trade. May add long call when using a short ATM call to mitigate upside risk.
A variation of #2 in a ratio spread to get 100 deltas.
Spreads ITM (delta play): Ive been trading these so far, but thinking about going to #2 with a protection for a short call position.
Yes you can do deep ITM long for calls and puts, but little open interest, volume and wider bid/as spreads. Stick to monthly options as the b/a spreads are tighter.
Thanks.
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mahkoh
1,065 posts
msg #132323
- Ignore mahkoh |
11/2/2016 4:12:17 PM
If VIX is moving into backwardation TVIX does not suffer its natural decay but actually benefits from how its is structured. Being short TVIX at those times is like rowing a river upstream.
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Kevin_in_GA
4,599 posts
msg #132324
- Ignore Kevin_in_GA |
11/2/2016 4:55:43 PM
Tell me about it.
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gmg733
788 posts
msg #132325
- Ignore gmg733 |
11/2/2016 5:35:08 PM
I don't know about Tvix but I suspect term structure is the same as the others which is based on futures contracts. So yes you would care about the Vix curve trading Tvix since it holds both short and long term /VX futures.
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ericeira
23 posts
msg #132330
- Ignore ericeira |
11/2/2016 9:00:00 PM
VIX futures contango and backwardation ratio chart
https://www.tradingview.com/chart/VIX/17gyfqZA-VIX-futures-contango-and-backwardation-VIX-VXV-ratio-chart/
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BarTune1
441 posts
msg #132331
- Ignore BarTune1 |
11/2/2016 9:22:06 PM
I posted a Larry Connors video a few years back ... His math indicated that while the VIX was mean reverting - in fact, most volatility ETFS were actually trend following ... this is making a little more sense to me lately. If you consider the natural decay of many of the volatility ETFs, I think we all know that more often than not ... most decay over time ... Therefore, there is an overall trend to contend with ...
Connors pointed out that one shouldn't trade volatility EFTs based purely on the VIX. Rather, systems that trade volatility of the ETFs should be based on historical price action of the ETFs. One of Connors primary systems for playing volatility ETFs is MA crosses which is to catch a trend ... rather than the vast majority of his other systems which are almost all mean reversion trades.
I agree with GMG that if you want to trade off the VIX signals ... you should be doing this through VIX options in which you can basically take a pure synthetic long or short with near dated options.
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ericeira
23 posts
msg #132334
- Ignore ericeira |
11/3/2016 1:25:42 AM
i Kevin looks like to be long xiv all we need is VIX/VXV<.9 and to be long vxx VIX/VXV>.9 to be incorporated into the filters so we could avoid the present backwardation but i could also be wrong .
Thanks for all the help .
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mahkoh
1,065 posts
msg #132335
- Ignore mahkoh |
11/3/2016 7:29:15 AM
Short TVIX will turn a profit sooner or later. There's just no telling how high it may spike. And there is the before mentioned risk of the shares getting called.
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gmg733
788 posts
msg #132341
- Ignore gmg733
modified |
11/3/2016 12:50:49 PM
@BarTune1
Bingo. If you look at VXX there is a daily roll where you sell a cheap item in the front month to buy a higher price product in the back month or a negative drag while in contango which it is like 80% or the time. Not sure of the stat, but it usually is historically in contango most of the time. VXX gains when it is selling a higher product and buy a lower priced one or Backwardation. While the VXX is a long vol product it is a negative drag product. While XIV is a short vol product it has a positive drag.
If you think vol is going down, you can sell call spreads or short the VXX effectively. The assumption is it has gone up and at a state when you feel it should be sold. You have mean reversion working for you and drag.
If you think vol is going to go up, I think you are screwed. You would think sell calls or shorting SVXY or XIV would work and it can, but you are fighting positive drag too. I'm less inclined to take that trade because drag is working against me.
And there in lies the issue. However you can sell VIX put spreads will get you long, or one of the other methods I mentioned.
This year selling VXX ITM call spreads has been an ATM machine for me. Down on a trade right now, but as drag kicks in and we have one or two up days, I'll be green. Manage early.
***VIX is in contango 88% of the time on average
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