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Learning, Sharing, and Teaching => Investor Alley => Topic started by: spud1987 on September 21, 2017, 01:40:41 PM

Title: Fun with VIX options
Post by: spud1987 on September 21, 2017, 01:40:41 PM
VIX measures stock market volatility. It goes up when volatility goes up. Right now it is near an all time low (around $8-9) since the stock market has been steady and calm. When volatility rises, it spikes sharply. For example, in October '08 it hit $89.

I recently purchased some out of the money call options with a Feb. 2018 expiration at $20. This cost me $1.50 per option. If the VIX is less than $20 in Feb. 2018 I lose all my money. If VIX is $35 in February, I 10X my money.

Only a $2k investment (less than .2% of my NW), but I view this as insurance against a market downturn. Nearly all my money is in Vanguard index funds (60/40 stock/bond split), but sometimes I make some small speculative bets to try and hit it big.
Title: Re: Fun with VIX options
Post by: NoStacheOhio on September 22, 2017, 06:18:04 AM

Only a $2k investment (less than .2% of my NW), but I view this as insurance against a market downturn. Nearly all my money is in Vanguard index funds (60/40 stock/bond split), but sometimes I make some small speculative bets to try and hit it big.

Insurance and speculation are two totally different things.
Title: Re: Fun with VIX options
Post by: talltexan on September 22, 2017, 07:43:42 AM
If $2,000 is less than 0.2% of your net worth, then you're a millionaire. Congratulations!

Based on your username, you're quite a young one, too. I've started reading ANTIFRAGILITY, and been considering the value of learning to make some small high-upside bets. Typically, skewness is quite expensive. For example, the typical lottery ticket has an expected payoff in excess of -40%. Identifying high-skewness wagers that do not carry a substantial penalty in mean is the trick.
Title: Re: Fun with VIX options
Post by: BTDretire on September 22, 2017, 09:05:15 AM
VIX measures stock market volatility. It goes up when volatility goes up. Right now it is near an all time low (around $8-9) since the stock market has been steady and calm. When volatility rises, it spikes sharply. For example, in October '08 it hit $89.

I recently purchased some out of the money call options with a Feb. 2018 expiration at $20. This cost me $1.50 per option. If the VIX is less than $20 in Feb. 2018 I lose all my money. If VIX is $35 in February, I 10X my money.

Only a $2k investment (less than .2% of my NW), but I view this as insurance against a market downturn. Nearly all my money is in Vanguard index funds (60/40 stock/bond split), but sometimes I make some small speculative bets to try and hit it big.
So you have about about 1300 options? Is each option 100 shares?
Just trying to get some idea how it works, I've wondered about a way to hedge a bit.
Title: Re: Fun with VIX options
Post by: trollwithamustache on September 22, 2017, 09:20:40 AM
Is the intent to do this on an ongoing basis? The long vix trade has failed to perform for a while now.... so how many time periods will you have to keep re-upping and will your big payout actually justify it?

Personally I only trade options I can price better than the pros can. And that sure as hell isn't index options.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 22, 2017, 10:07:37 AM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk. 
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 22, 2017, 11:59:49 AM
^ I've considered doing a spread going long VIX and short UVXY just to capture the waste inherent in the ETF's business model. I wonder if that could be done in a way that hedges against spikes in VIX while still capturing double-digit returns independent of whatever's going on in the market. It seems like as close to a risk-free trade as I can imagine, but I lack the expertise/software to execute it. E.g. how to calculate the covariance and trade the right number of options so that your overall position is VIX neutral but also short UVXY?
Title: Re: Fun with VIX options
Post by: alexpkeaton on September 22, 2017, 08:46:31 PM
So you have about about 1300 options? Is each option 100 shares?

Since the VIX isn't a company or even a collection of companies, I don't believe they're really shares. It's just cash.

This strategy, while with great potential upside, is basically a loser over time. My VIX strategy is to wait for the next crash, and short the VIX when it's high. It will inevitably fall. Timing the gradual fall of the VIX is much easier than timing a spike.

If you'd just like to make steady income, you can short the VIX and just roll your options forward every month. Or just buy SVXY.
Title: Re: Fun with VIX options
Post by: frugledoc on September 23, 2017, 01:12:03 AM
It's an interesting aspect of behavioural finance.

I also find that the more money I have, the more I am tempted to speculate.

When you work hard for your cash and you see people becoming rich from the latest craze like bitcoin it is hard not to jump in, afterall, what does a few thousand bucks matter?

The problem is that you will need to lose a lot of these speculative bets for every one that comes good.

If your first bet or two come good, then the temptation will be to double down, and so on.

It's basically gambling vs investing. 
Title: Re: Fun with VIX options
Post by: BTDretire on September 23, 2017, 05:47:26 AM
So you have about about 1300 options? Is each option 100 shares?

Since the VIX isn't a company or even a collection of companies, I don't believe they're really shares. It's just cash.

This strategy, while with great potential upside, is basically a loser over time. My VIX strategy is to wait for the next crash, and short the VIX when it's high. It will inevitably fall. Timing the gradual fall of the VIX is much easier than timing a spike.

If you'd just like to make steady income, you can short the VIX and just roll your options forward every month. Or just buy SVXY.
The most positive thing I can see is, the VIX is as low as it has been in the last 10 years.
And the market is as high as it has ever been.
What can anyone glean fron this chart of the VIX and VTSAX.
  EdIt:  Looks Like you need to click on it to see the detail.
Title: Re: Fun with VIX options
Post by: hgjjgkj on September 24, 2017, 11:24:28 AM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.

I went and checked out the options chain for UVXY. Can ou explain a bit about what is going on. It looks like your contract is trading at a much higher rate than contracts with strikes close to it. Why? Separately, how do you decide when it is best to enter the trade? I assume you avoid times around reverse splits, but anything else? Very fascinating and thanks for sharing. Link to the chain https://finance.yahoo.com/quote/UVXY/options?p=UVXY&date=1547769600
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 24, 2017, 06:25:11 PM
It's an interesting aspect of behavioural finance.

I also find that the more money I have, the more I am tempted to speculate.

When you work hard for your cash and you see people becoming rich from the latest craze like bitcoin it is hard not to jump in, afterall, what does a few thousand bucks matter?

The problem is that you will need to lose a lot of these speculative bets for every one that comes good.

If your first bet or two come good, then the temptation will be to double down, and so on.

It's basically gambling vs investing.

It seems inevitable that entrepreneurs will continually invent new speculative instruments like bitcoin, given the high demand for get-rich-quick opportunities. It also seems inevitable that markets will be flooded with such offerings, as the cost to develop something without value is usually low. This means that a strategy of buying lottery tickets will usually fail due to the longshot odds that a speculation tool turns out to be useful.

Finally, it seems inevitable that the most successful speculative opportunities will be the ones whose future potential is most vague. A narrative for how the investment could take off has to be just right in terms of specificity vs vague answers. The uncertainty makes it seem like a reasonable gamble.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 24, 2017, 06:58:40 PM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.



I went and checked out the options chain for UVXY. Can ou explain a bit about what is going on. It looks like your contract is trading at a much higher rate than contracts with strikes close to it. Why? Separately, how do you decide when it is best to enter the trade? I assume you avoid times around reverse splits, but anything else? Very fascinating and thanks for sharing. Link to the chain https://finance.yahoo.com/quote/UVXY/options?p=UVXY&date=1547769600

Yahoo's quote system is busted for this security.  The strikes with a multiple of 5 are the current 100 share contracts.  The other strikes are pre-split.  Volume is declining because no new contracts can be written for those virtual strikes.  Entering near a split is not particularly problematic.  I find I am still able to close the contract with a no larger than normal bid/ask spread.  I usually enter during low volatility (relatively) instead of high as VIX spikes drive up the price of puts but only temporarily. 
Title: Re: Fun with VIX options
Post by: spud1987 on September 25, 2017, 12:54:08 PM
Update: I'm up 10% so far. So like a 400% annual rate of return. Should've put my whole nest egg in this investment! ;)

Also, as others have mentioned, this is a very risky investment and I'm risking 100% loss of principal, which is why I limited my investment to $2k.
Title: Re: Fun with VIX options
Post by: talltexan on September 26, 2017, 08:24:12 AM
PTF
Title: Re: Fun with VIX options
Post by: starguru on September 27, 2017, 06:37:45 AM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.

I'm having trouble following what's going on.  Can you explain this in more detail?  Also, if I wanted to do this, what is a step by step list of what to do?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 27, 2017, 07:10:37 AM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.

I'm having trouble following what's going on.  Can you explain this in more detail?  Also, if I wanted to do this, what is a step by step list of what to do?

Starguru,

In simple terms, VXX, UVXY, and similar securities are real dogs.  They are designed (badly) to reflect the return of holding (or shorting) the ^VIX for a ONE DAY PERIOD.  Over long(er) periods of time, the construction results in rapid and predictable decay of net asset value.  See https://finance.yahoo.com/quote/UVXY/performance?p=UVXY (https://finance.yahoo.com/quote/UVXY/performance?p=UVXY)

It is possible to make money by betting AGAINST a security.  The normal way to do this, selling shares short, doesn't work very well with UVXY because it is a very popular short with a high cost to borrow.  That is, you will pay a punishing interest rate to sell the shares short.  The workaround is to use options to create a bearish wager. 

Since the security is more or less accurate over a single day and decreasingly efficient over longer periods of time, you want to select options with as much time left to expiry as possible.  That is currently the 18JAN2019 expiry.

The lowest risk way to use options to bet against UVXY is to buy PUTS.  A put is a contract that gives you the right but not the obligation to sell shares of the underlying security into the market at the "strike" price at any time up to the expiration.  So if you purchase the 22 strike 18JAN2019 put (UVXY190118P00022000), you will be able to sell shares for 22 dollars at any time between now and February 2019.  Since shares can be expected to be much lower than that by expiration, you have an opportunity to make a profit.

Note that it isn't necessary to exercise the shares and buy them back cheap.  You can sell the put into the market directly at any time to save a step and a commission.  On about 27,000 in capital at risk, I have made so far this year:



That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 

*NOTE: There is a small but non-zero risk of losing your entire investment in the above scenario if shares are higher than 22 at expiration.
*NOTE2: There are other ways to make a bearish bet with options but while they can be more lucrative, they are more dangerous.  I really blew up my portfolio several years ago because I was too damned greedy.  Forrest Gump's Mamma says "Stupid is as Stupid does."  The Lizard King says "Stupid is as Stupid doesn't learn from its own mistakes."
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 27, 2017, 07:39:24 AM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.

I'm having trouble following what's going on.  Can you explain this in more detail?  Also, if I wanted to do this, what is a step by step list of what to do?

Starguru,

In simple terms, VXX, UVXY, and similar securities are real dogs.  They are designed (badly) to reflect the return of holding (or shorting) the ^VIX for a ONE DAY PERIOD.  Over long(er) periods of time, the construction results in rapid and predictable decay of net asset value.  See https://finance.yahoo.com/quote/UVXY/performance?p=UVXY (https://finance.yahoo.com/quote/UVXY/performance?p=UVXY)

It is possible to make money by betting AGAINST a security.  The normal way to do this, selling shares short, doesn't work very well with UVXY because it is a very popular short with a high cost to borrow.  That is, you will pay a punishing interest rate to sell the shares short.  The workaround is to use options to create a bearish wager. 

Since the security is more or less accurate over a single day and decreasingly efficient over longer periods of time, you want to select options with as much time left to expiry as possible.  That is currently the 18JAN2019 expiry.

The lowest risk way to use options to bet against UVXY is to buy PUTS.  A put is a contract that gives you the right but not the obligation to sell shares of the underlying security into the market at the "strike" price at any time up to the expiration.  So if you purchase the 22 strike 18JAN2019 put (UVXY190118P00022000), you will be able to sell shares for 22 dollars at any time between now and February 2019.  Since shares can be expected to be much lower than that by expiration, you have an opportunity to make a profit.

Note that it isn't necessary to exercise the shares and buy them back cheap.  You can sell the put into the market directly at any time to save a step and a commission.  On about 27,000 in capital at risk, I have made so far this year:

  • $900 over 48 days
  • $1,365 over 28 days
  • $3,325 over 175 days
  • $2,376 over 6 days


That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 

*NOTE: There is a small but non-zero risk of losing your entire investment in the above scenario if shares are higher than 22 at expiration.
*NOTE2: There are other ways to make a bearish bet with options but while they can be more lucrative, they are more dangerous.  I really blew up my portfolio several years ago because I was too damned greedy.  Forrest Gump's Mamma says "Stupid is as Stupid does."  The Lizard King says "Stupid is as Stupid doesn't learn from its own mistakes."

Step one would be to go to the library and get 3-4 books about options to read until you know a crapload.

Step two is to execute a few trades in a play account before wagering real money.

Understand that options are highly volatile. Half of them expire with no value. Also, you are betting against supercomputers, so good luck. Knowing the difference between bets that increase safety and bets that could cost you five figures is critical.
Title: Re: Fun with VIX options
Post by: starguru on September 27, 2017, 08:08:42 AM
There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.

I'm having trouble following what's going on.  Can you explain this in more detail?  Also, if I wanted to do this, what is a step by step list of what to do?

Starguru,

In simple terms, VXX, UVXY, and similar securities are real dogs.  They are designed (badly) to reflect the return of holding (or shorting) the ^VIX for a ONE DAY PERIOD.  Over long(er) periods of time, the construction results in rapid and predictable decay of net asset value.  See https://finance.yahoo.com/quote/UVXY/performance?p=UVXY (https://finance.yahoo.com/quote/UVXY/performance?p=UVXY)

It is possible to make money by betting AGAINST a security.  The normal way to do this, selling shares short, doesn't work very well with UVXY because it is a very popular short with a high cost to borrow.  That is, you will pay a punishing interest rate to sell the shares short.  The workaround is to use options to create a bearish wager. 

Since the security is more or less accurate over a single day and decreasingly efficient over longer periods of time, you want to select options with as much time left to expiry as possible.  That is currently the 18JAN2019 expiry.

The lowest risk way to use options to bet against UVXY is to buy PUTS.  A put is a contract that gives you the right but not the obligation to sell shares of the underlying security into the market at the "strike" price at any time up to the expiration.  So if you purchase the 22 strike 18JAN2019 put (UVXY190118P00022000), you will be able to sell shares for 22 dollars at any time between now and February 2019.  Since shares can be expected to be much lower than that by expiration, you have an opportunity to make a profit.

Note that it isn't necessary to exercise the shares and buy them back cheap.  You can sell the put into the market directly at any time to save a step and a commission.  On about 27,000 in capital at risk, I have made so far this year:

  • $900 over 48 days
  • $1,365 over 28 days
  • $3,325 over 175 days
  • $2,376 over 6 days


That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 

*NOTE: There is a small but non-zero risk of losing your entire investment in the above scenario if shares are higher than 22 at expiration.
*NOTE2: There are other ways to make a bearish bet with options but while they can be more lucrative, they are more dangerous.  I really blew up my portfolio several years ago because I was too damned greedy.  Forrest Gump's Mamma says "Stupid is as Stupid does."  The Lizard King says "Stupid is as Stupid doesn't learn from its own mistakes."

Step one would be to go to the library and get 3-4 books about options to read until you know a crapload.

Step two is to execute a few trades in a play account before wagering real money.

Understand that options are highly volatile. Half of them expire with no value. Also, you are betting against supercomputers, so good luck. Knowing the difference between bets that increase safety and bets that could cost you five figures is critical.

Thank you for the both of you, especially Financial.Velociraptor, for the explanation.  I should have made clear that I understood the difference between buying PUT and CALL options, but I wasn't clear what was going on with this trade.  FV also mentioned LEAP, and I don't know what that is.

Where does one even do these trades?

Edit to ask, FV how are you deciding when to sell and when to rebuy?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 27, 2017, 09:58:12 AM
Thank you for the both of you, especially Financial.Velociraptor, for the explanation.  I should have made clear that I understood the difference between buying PUT and CALL options, but I wasn't clear what was going on with this trade.  FV also mentioned LEAP, and I don't know what that is.

Where does one even do these trades?

Edit to ask, FV how are you deciding when to sell and when to rebuy?

A LEAP is a long dated options security.  See: https://en.wikipedia.org/wiki/LEAPS_(finance) (https://en.wikipedia.org/wiki/LEAPS_(finance))

Virtually any online broker will let you trade long puts so long as you have sufficient cash.  I use Interactive Brokers. Select the 'options' tab; flip the flags for 'buy' and 'put'; select a strike; select an expiry; make a limit order and then be patient.

I have been buying about 30% out of the  money and selling when the options move into the money.  Sometimes I hold to pick up some intrinsic value.  It's more art than science.  I usually roll to a lower strike immediately.  Since the long term average decay is over 80% a year, it makes a lot of sense to maximize my time in the trade.  You can see my recent history in this trade on my blog: http://velociraptor.cc (http://velociraptor.cc).  I record both buys and sells publicly.

Title: Re: Fun with VIX options
Post by: starguru on September 27, 2017, 03:26:58 PM
I am wondering how is this even possible?  Wouldn’t everyone be doing it if it were so great?

If I wanted to do this now what would the best strategy be?  Say I wanted to play with 10k?  Should I buy 2500 worth of PUTS on UVXY each month for 4 months? 

Also with options as I understand them every winner has a loser.   What are people who sell PUTS on this security betting on?


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Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 27, 2017, 03:47:09 PM
I am wondering how is this even possible?  Wouldn’t everyone be doing it if it were so great?

If I wanted to do this now what would the best strategy be?  Say I wanted to play with 10k?  Should I buy 2500 worth of PUTS on UVXY each month for 4 months? 

Also with options as I understand them every winner has a loser.   What are people who sell PUTS on this security betting on?


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Anytime you buy a put between the bid/ask, someone acted as market maker.  That may be the official market maker at the exchange or a lightning fast hedge fund that beats them to the punch.  Market makers typically play 'both ends against the middle'.  They have a fully hedged position (no risk), be it hedged with the underlying, another strike, a call, whatever.  Most times, they actually "took you" for a few cents per share in arbitrage profits.  While UVXY is intended to work over a day, a market maker is looking at a period of time measured in seconds.  For a more theoretical discussion see: https://en.wikipedia.org/wiki/Put%E2%80%93call_parity (https://en.wikipedia.org/wiki/Put%E2%80%93call_parity)

Why isn't everyone doing it?  Beats me.  I've been posting about this on my blog for over a year and only a handful of people are doing their own trades as far as I can tell.  I've seen a couple news articles over the years where it was noted someone bought a "large" amount of puts.  Large enough to be newsworthy such as 50MM.

I usually go all in with my full allocation immediately instead of trying to dollar cost average over a period of time.  My next trade is going to be an A/B test on multiple strikes to see which has the best return profile.  I'll go about 10 dollars out of the money and 10 dollars in the money and see what happens.
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 27, 2017, 04:00:16 PM
I am wondering how is this even possible?  Wouldn’t everyone be doing it if it were so great?

If I wanted to do this now what would the best strategy be?  Say I wanted to play with 10k?  Should I buy 2500 worth of PUTS on UVXY each month for 4 months? 

Also with options as I understand them every winner has a loser.   What are people who sell PUTS on this security betting on?


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1) Smart questions. Options are essentially zero-net-
sum gambling. You face a non-negligible risk of 100% loss. Also, this has become an increasingly crowded trade, which is why the liquidity is good. See many recent financial news articles.

2) Buy $300 worth of the longest-dated puts available. This is play money you can afford to speculate, not your whole savings. Preferably pick the strike price with the highest delta. Vow to hold the puts for at least 6 mos even as they swing +/- 50% in price and behave weirdly. Note that a 1 for 5 reverse split is likely when the price gets below $10. Consider gambling more with experience.

3) Options prices are a factor of the stock's volatility. UVXY is very volatile in the short term, but has a clear downward trend long-term due to stable factors. Options pricing models don't look at trend or the underlying structure of the instrument - they factor in price and volatility. So asymmetrical information is your edge against the supercomputer. You know it's volatile and it sucks. The computer only knows it's volatile. That's the theory anyway.

Who is selling you the puts? Probably computers and other investors setting up vertical spreads, butterflies, iron condors, and other multi-leg strategies with a potential losses of less than 100%. Many of these strategies make sense for your fellow bearish investors with less risk tolerance.
Title: Re: Fun with VIX options
Post by: starguru on September 27, 2017, 04:41:52 PM
On the UVXY fund description page I see this

"Intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily."

Something seems "broken" to me if investors can play long term games with a security that is fundamentally intentioned for short-term use.  Also, I'm trying to understand what an investor who buys PUT options on UVXY is betting on.

"UVXY provides leveraged exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration."

So there is VIX, short-term futures, and weighted average of one month to expiration.  What is going on here at a fundamental level?

Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 27, 2017, 04:53:58 PM
On the UVXY fund description page I see this

"Intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily."

Something seems "broken" to me if investors can play long term games with a security that is fundamentally intentioned for short-term use.  Also, I'm trying to understand what an investor who buys PUT options on UVXY is betting on.

"UVXY provides leveraged exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration."

So there is VIX, short-term futures, and weighted average of one month to expiration.  What is going on here at a fundamental level?

The security is designed with a short view in mind.  They never intended anyone to make long term speculations around the product.  Therein they missed something huge.  It is a no-brainer to make long term bets against the product.  This doesn't trouble the issuer as they earn a load on the Net Asset Value.  People keep plowing new funds into the product for short term speculation so it doesn't matter that the product decays like mad.  It should be against the law but isn't.

In essence, UVXY is a double leveraged portfolio of ^VIX futures (you can't buy ^VIX directly.)  It technically doesn't exist.  You are dealing with a synthetic commodity.  The portfolio is composed of 14 and 40 day ^VIX futures.  On any given day, these have a discreet market value (The NAV).  When you buy UVXY puts, you are buying the right to sell UVXY at the strike price.  This is a position that gains from decreases in the price of UVXY.  We know that most of the time UVXY will decay because those 14 and 40 day futures have to be rolled daily.  Since the 40 day futures have more 'time value' than the shorter term 14 day futures, they must sell a "cheap" asset to buy an "expensive" one.  This is know as 'contango'.   Else, see 'backwardation': https://en.wikipedia.org/wiki/Normal_backwardation (https://en.wikipedia.org/wiki/Normal_backwardation)

ChpBstrd made some good points.  There is a non zero chance of losing 100% of the investment.  In essence, this is a 'time arbitrage' investment.
Title: Re: Fun with VIX options
Post by: starguru on September 27, 2017, 05:03:07 PM
On the UVXY fund description page I see this

"Intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily."

Something seems "broken" to me if investors can play long term games with a security that is fundamentally intentioned for short-term use.  Also, I'm trying to understand what an investor who buys PUT options on UVXY is betting on.

"UVXY provides leveraged exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration."

So there is VIX, short-term futures, and weighted average of one month to expiration.  What is going on here at a fundamental level?

The security is designed with a short view in mind.  They never intended anyone to make long term speculations around the product.  Therein they missed something huge.  It is a no-brainer to make long term bets against the product.  This doesn't trouble the issuer as they earn a load on the Net Asset Value.  People keep plowing new funds into the product for short term speculation so it doesn't matter that the product decays like mad.  It should be against the law but isn't.

In essence, UVXY is a double leveraged portfolio of ^VIX futures (you can't buy ^VIX directly.)  It technically doesn't exist.  You are dealing with a synthetic commodity.  The portfolio is composed of 14 and 40 day ^VIX futures.  On any given day, these have a discreet market value (The NAV).  When you buy UVXY puts, you are buying the right to sell UVXY at the strike price.  This is a position that gains from decreases in the price of UVXY.  We know that most of the time UVXY will decay because those 14 and 40 day futures have to be rolled daily.  Since the 40 day futures have more 'time value' than the shorter term 14 day futures, they must sell a "cheap" asset to buy an "expensive" one.  This is know as 'contango'.   Else, see 'backwardation': https://en.wikipedia.org/wiki/Normal_backwardation (https://en.wikipedia.org/wiki/Normal_backwardation)

ChpBstrd made some good points.  There is a non zero chance of losing 100% of the investment.  In essence, this is a 'time arbitrage' investment.

FV I really appreciate your patience with my questions.  When I asked about what is fundamentally going on with this bet I meant in terms of the economy and/or the SP500.  So is it a bet that the SP500 goes up or down?  Something different?  Is it a bet for increased or decreased volatility? 
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 27, 2017, 08:28:05 PM


FV I really appreciate your patience with my questions.  When I asked about what is fundamentally going on with this bet I meant in terms of the economy and/or the SP500.  So is it a bet that the SP500 goes up or down?  Something different?  Is it a bet for increased or decreased volatility?

Most of the time (overwhelming so) ^VIX and UVXY are countercyclical.   If the SP500 is up, VIX/UVXY will be down.  And vice-versa.  But this is not a bet on the economy grinding higher.  It is a bet on the power of contango in the futures markets.  Over "long" periods of time, UVXY is going to decline, even if the SP500 is down 50%.  Volatility and SP500 moves matter in the short term only.  With a LEAP put, you are counting on the long term decay from rolling futures.   It is the time frame that matters, not what happens in the market in the interim.
Title: Re: Fun with VIX options
Post by: starguru on September 27, 2017, 08:46:28 PM


FV I really appreciate your patience with my questions.  When I asked about what is fundamentally going on with this bet I meant in terms of the economy and/or the SP500.  So is it a bet that the SP500 goes up or down?  Something different?  Is it a bet for increased or decreased volatility?

Most of the time (overwhelming so) ^VIX and UVXY are countercyclical.   If the SP500 is up, VIX/UVXY will be down.  And vice-versa.  But this is not a bet on the economy grinding higher.  It is a bet on the power of contango in the futures markets.  Over "long" periods of time, UVXY is going to decline, even if the SP500 is down 50%.  Volatility and SP500 moves matter in the short term only.  With a LEAP put, you are counting on the long term decay from rolling futures.   It is the time frame that matters, not what happens in the market in the interim.

A few more questions, if you are willing to humor me. 

1.  How do you decide on a strike price for your options?
2.  If the theory is this security constantly declines (with some bumps),  I don't understand why you would sell your options until close to settle date.   Especially if when you sell you just roll your profits into new positions.
3.  I still don't understand why anyone would write these long options on this security.  I can understand why writing short term options might make sense (although Im not smart enough to think of any) but long term options seem like suicide. 

Man eTrade's option form is just terrible.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 27, 2017, 09:02:23 PM

A few more questions, if you are willing to humor me. 

1.  How do you decide on a strike price for your options?
2.  If the theory is this security constantly declines (with some bumps),  I don't understand why you would sell your options until close to settle date.   Especially if when you sell you just roll your profits into new positions.
3.  I still don't understand why anyone would write these long options on this security.  I can understand why writing short term options might make sense (although Im not smart enough to think of any) but long term options seem like suicide. 

Man eTrade's option form is just terrible.

1.  It has been trial and error. I hope to improve on this in the next cycle with some A/B testing on multiple strikes at the same time.
2.  It is peculiar matter of arithmetic.  Two declines of 50% are not 100% decline but rather 75%.   You capture more downside by rolling frequently.  e.g. collect 50% twice instead of 75% once...
3.  You'd be mad to sell a long dated put on its own.  The market maker is engaged in arbitrage involving multiple legs, and/or the underlying security.  The MM earns a sliver of an immediate return of a few pennies per share.  Your long term prospects are irrelevant to the market maker.  In short, your counter-party is hedged. 
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 27, 2017, 09:38:58 PM
FV I really appreciate your patience with my questions.  When I asked about what is fundamentally going on with this bet I meant in terms of the economy and/or the SP500.  So is it a bet that the SP500 goes up or down?  Something different?  Is it a bet for increased or decreased volatility?

See https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/ (https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/).
Title: Re: Fun with VIX options
Post by: starguru on September 28, 2017, 07:57:05 AM
Thanks ChpBstrd. 

I'm debating doing the options trading at Fidelity.  Has anyone done this thru them or is it better to use some other venue?  Etrade's form is so bad I'm not going to use it.
Title: Re: Fun with VIX options
Post by: toganet on September 28, 2017, 10:03:50 AM


See https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/ (https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/).
[/quote]

That link led me to this one: https://sixfigureinvesting.com/2016/10/is-shorting-uvxy-tvix-vxx-the-perfect-trade/ (https://sixfigureinvesting.com/2016/10/is-shorting-uvxy-tvix-vxx-the-perfect-trade/) which outlines a similar set of approaches.
Title: Re: Fun with VIX options
Post by: starguru on September 28, 2017, 10:16:49 AM


See https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/ (https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/).

That link led me to this one: https://sixfigureinvesting.com/2016/10/is-shorting-uvxy-tvix-vxx-the-perfect-trade/ (https://sixfigureinvesting.com/2016/10/is-shorting-uvxy-tvix-vxx-the-perfect-trade/) which outlines a similar set of approaches.
[/quote]

Yes very interesting.  The article points out the logical fact that in certain situations short positions in general can go sideways really fast.  The interesting thing about FV trade is that buying a long dated put there is a relatively large window for the position to move back into the money. 

A question about volatility.  A quick google search leads to this definition

"Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index."

So if prices drop really quickly due to a market crash for whatever reason, and then rise just as fast during the recovery (a-la 2008-2009), volatility is high for that entire period, right?  How does that play into the UVXY trade, specifically the 14 and 40 day dance UVXY uses?
Title: Re: Fun with VIX options
Post by: trollwithamustache on September 28, 2017, 11:44:26 AM
When we talk VIX, the definition of the volatilely is as the CBOE defines it based on equity options priced, not the how the math professors may define it.

Since the VIX is based on prices of individual equity options, its the markets implied expected variation.  To your example, the market can move quite a bit, but that doesn't mean the various VIX products will if the market thinks the market move will reverse itself.  At least this often appears to be the case with VIX options.  Remember, you can never buy VIX, only things that are in some way derivative of it.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 28, 2017, 03:11:30 PM
Yes very interesting.  The article points out the logical fact that in certain situations short positions in general can go sideways really fast.  The interesting thing about FV trade is that buying a long dated put there is a relatively large window for the position to move back into the money. 


Exactly this.  If you buy a put with 4 weeks to expiry, the odds of a 100% loss of investment are high.  If you buy a put with over a year till expiry, the outcome is highly certain.
Title: Re: Fun with VIX options
Post by: starguru on September 28, 2017, 03:13:52 PM
Yes very interesting.  The article points out the logical fact that in certain situations short positions in general can go sideways really fast.  The interesting thing about FV trade is that buying a long dated put there is a relatively large window for the position to move back into the money. 


Exactly this.  If you buy a put with 4 weeks to expiry, the odds of a 100% loss of investment are high.  If you buy a put with over a year till expiry, the outcome is highly certain.

How long would you say you keep your options before selling on the open market?  For safety I would think you would want to cycle as fast as possible, so your options are always far in the future, so you can recover from any potential disaster...
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 28, 2017, 04:04:08 PM

How long would you say you keep your options before selling on the open market?  For safety I would think you would want to cycle as fast as possible, so your options are always far in the future, so you can recover from any potential disaster...

I sell when I have a gain I'm happy with.  I prefer to hold at least 30 days but sometimes I get opportunites faster than that that are too good to pass up.  I've had 4 sales this year and the holding periods were: 48 days, 28 days, 175 days, and 6 days.  My current puts are approaching an exit point and are at 17 days as of today.
Title: Re: Fun with VIX options
Post by: starguru on September 29, 2017, 08:48:07 AM
Ok so I added the options trade ability to my Roth IRA.  I've attached a screenshot of the trade form and want to make sure I've done this right.

"Buy to open" means buying to open a position. 
"Quantity" 3 means 3 contracts, 100 shares per contract.
"Expiration" means the date upon which my option expire (Jan 18 2019)
"Strike" of 21 means the price of the shares of UXVY under which I make money (accounting for the fact that I am paying a premium per share to open the contract).  I see options (har har) in the strike price menu for 21 Adj and 21 Adj 3 which I don't understand

In the Bid/Ask section it seems like writers of PUT options for that date want $13.25 per share.  If I understand this correctly, this means, if I pay the ask price, the security needs to fall to under 21-13.25=7.75 for me to make money?  This also seems to imply that my max profit is 7.75 per share, so 775 for each contract, and if I bought 3 contracts that is 2325. 

 
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 29, 2017, 08:57:58 AM
Ok so I added the options trade ability to my Roth IRA.  I've attached a screenshot of the trade form and want to make sure I've done this right.

"Buy to open" means buying to open a position. 
"Quantity" 3 means 3 contracts, 100 shares per contract.
"Expiration" means the date upon which my option expire (Jan 18 2019)
"Strike" of 21 means the price of the shares of UXVY under which I make money (accounting for the fact that I am paying a premium per share to open the contract).  I see options (har har) in the strike price menu for 21 Adj and 21 Adj 3 which I don't understand

In the Bid/Ask section it seems like writers of PUT options for that date want $13.25 per share.  If I understand this correctly, this means, if I pay the ask price, the security needs to fall to under 21-13.25=7.75 for me to make money?  This also seems to imply that my max profit is 7.75 per share, so 775 for each contract, and if I bought 3 contracts that is 2325.

My guess is 21 adj and 21 adj 3 are the post split shares. 

Don't pay the ask.  Put in a limit order between the bid/ask and be patient. 

Your math is correct if you hold till expiration.  If you roll the option before expiration, some of the 13.25 time value will still be active.  For example, I bought the 20 strike 18JAN2019 put for 11.57 on 12SEP2017.  I have a good till canceled limit to sell at 12.55.  Most of that will be time value and only a little, if any, will be "intrinsic value" i.e. the amount the option is in the money.  Time value always drops to zero at expiry.
Title: Re: Fun with VIX options
Post by: starguru on September 29, 2017, 09:06:21 AM
Ok so I added the options trade ability to my Roth IRA.  I've attached a screenshot of the trade form and want to make sure I've done this right.

"Buy to open" means buying to open a position. 
"Quantity" 3 means 3 contracts, 100 shares per contract.
"Expiration" means the date upon which my option expire (Jan 18 2019)
"Strike" of 21 means the price of the shares of UXVY under which I make money (accounting for the fact that I am paying a premium per share to open the contract).  I see options (har har) in the strike price menu for 21 Adj and 21 Adj 3 which I don't understand

In the Bid/Ask section it seems like writers of PUT options for that date want $13.25 per share.  If I understand this correctly, this means, if I pay the ask price, the security needs to fall to under 21-13.25=7.75 for me to make money?  This also seems to imply that my max profit is 7.75 per share, so 775 for each contract, and if I bought 3 contracts that is 2325.

My guess is 21 adj and 21 adj 3 are the post split shares. 

Don't pay the ask.  Put in a limit order between the bid/ask and be patient. 

Your math is correct if you hold till expiration.  If you roll the option before expiration, some of the 13.25 time value will still be active.  For example, I bought the 20 strike 18JAN2019 put for 11.57 on 12SEP2017.  I have a good till canceled limit to sell at 12.55.  Most of that will be time value and only a little, if any, will be "intrinsic value" i.e. the amount the option is in the money.  Time value always drops to zero at expiry.

When you say sell at 12.55, do you mean execute your options when the uvxy price hits 12.55, or sell your options if someone is willing to offer you 12.55 per share?

Edit:  while exercising it dawned on me that you probably mean sell your option.  If your limit sells for 12.55, you will have made 12.55-11.57 per share (minus trading costs).

So if you had to open a position now which strike would you use?  I could get the 20 strike for 12.40 or the 19 for 11.40.  Is there any practical difference between these?  It seems that if the strike changes by a dollar, the ask also changes by a dollar.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 29, 2017, 09:54:15 AM

When you say sell at 12.55, do you mean execute your options when the uvxy price hits 12.55, or sell your options if someone is willing to offer you 12.55 per share?

Edit:  while exercising it dawned on me that you probably mean sell your option.  If your limit sells for 12.55, you will have made 12.55-11.57 per share (minus trading costs).

So if you had to open a position now which strike would you use?  I could get the 20 strike for 12.40 or the 19 for 11.40.  Is there any practical difference between these?  It seems that if the strike changes by a dollar, the ask also changes by a dollar.

I mean sell the option, not execute it.  You have it right.  Your math is also right (trading costs are trivial at Interactive Brokers, less than 1 dollar per contract).

I usually open my position about 25-30% out of the money.  This is 'more risky' than going at the money or in the money.  Next time, I'm going to try going in the money by 25% and also out by 25% to A/B test how they perform.  Really, it doesn't make a whole lot of difference what strike you pick I think.  The decay of UVXY is steep enough to overcome most any error in execution.
Title: Re: Fun with VIX options
Post by: starguru on September 29, 2017, 10:03:38 AM

When you say sell at 12.55, do you mean execute your options when the uvxy price hits 12.55, or sell your options if someone is willing to offer you 12.55 per share?

Edit:  while exercising it dawned on me that you probably mean sell your option.  If your limit sells for 12.55, you will have made 12.55-11.57 per share (minus trading costs).

So if you had to open a position now which strike would you use?  I could get the 20 strike for 12.40 or the 19 for 11.40.  Is there any practical difference between these?  It seems that if the strike changes by a dollar, the ask also changes by a dollar.

I mean sell the option, not execute it.  You have it right.  Your math is also right (trading costs are trivial at Interactive Brokers, less than 1 dollar per contract).

I usually open my position about 25-30% out of the money.  This is 'more risky' than going at the money or in the money.  Next time, I'm going to try going in the money by 25% and also out by 25% to A/B test how they perform.  Really, it doesn't make a whole lot of difference what strike you pick I think.  The decay of UVXY is steep enough to overcome most any error in execution.

And you just well when you are happy?   If you have a limit order to sell it seems like there is some planning going on. 

Anyway, I just set up an order to sell $5000 worth of FSTVX, which means I can't do anything today anyway.  Ill start small with 1 contract and then build from there as I understand more.  Thanx for putting me on to this!
Title: Re: Fun with VIX options
Post by: hgjjgkj on September 29, 2017, 12:52:59 PM

When you say sell at 12.55, do you mean execute your options when the uvxy price hits 12.55, or sell your options if someone is willing to offer you 12.55 per share?

Edit:  while exercising it dawned on me that you probably mean sell your option.  If your limit sells for 12.55, you will have made 12.55-11.57 per share (minus trading costs).

So if you had to open a position now which strike would you use?  I could get the 20 strike for 12.40 or the 19 for 11.40.  Is there any practical difference between these?  It seems that if the strike changes by a dollar, the ask also changes by a dollar.

I mean sell the option, not execute it.  You have it right.  Your math is also right (trading costs are trivial at Interactive Brokers, less than 1 dollar per contract).

I usually open my position about 25-30% out of the money.  This is 'more risky' than going at the money or in the money.  Next time, I'm going to try going in the money by 25% and also out by 25% to A/B test how they perform.  Really, it doesn't make a whole lot of difference what strike you pick I think.  The decay of UVXY is steep enough to overcome most any error in execution.

But to be clear if you make 12.55-11.57 you then have to back out the loss from the bid ask spread right? it looks like for the jan 2019 options that is ~20-40 cents. Is that right?
Title: Re: Fun with VIX options
Post by: starguru on September 29, 2017, 01:01:42 PM
But to be clear if you make 12.55-11.57 you then have to back out the loss from the bid ask spread right? it looks like for the jan 2019 options that is ~20-40 cents. Is that right?

If I understand correctly, he has a limit order to sell at 12.55.  That would be the "ask" for someone looking to buy his options.  When he bought, his 11.57 was his bid, or what he otherwise ended up paying. 

So bid/ask doesn't come into this calculation.  It is already included in those numbers.
Title: Re: Fun with VIX options
Post by: hgjjgkj on September 29, 2017, 10:49:06 PM

When you say sell at 12.55, do you mean execute your options when the uvxy price hits 12.55, or sell your options if someone is willing to offer you 12.55 per share?

Edit:  while exercising it dawned on me that you probably mean sell your option.  If your limit sells for 12.55, you will have made 12.55-11.57 per share (minus trading costs).

So if you had to open a position now which strike would you use?  I could get the 20 strike for 12.40 or the 19 for 11.40.  Is there any practical difference between these?  It seems that if the strike changes by a dollar, the ask also changes by a dollar.

I mean sell the option, not execute it.  You have it right.  Your math is also right (trading costs are trivial at Interactive Brokers, less than 1 dollar per contract).

I usually open my position about 25-30% out of the money.  This is 'more risky' than going at the money or in the money.  Next time, I'm going to try going in the money by 25% and also out by 25% to A/B test how they perform.  Really, it doesn't make a whole lot of difference what strike you pick I think.  The decay of UVXY is steep enough to overcome most any error in execution.

I looked up the option price chain for the Jan 2019 20 strikes http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00020000-uvxy-put

If you go to the 1 year view you see some pretty big nose dives in value. What was your logic in your entry point to avoid being on the wrong side?

Additionally I was playing with this profit calculator, here: http://www.optionsprofitcalculator.com/calculator/long-put.html, and it looks like a step fall needs to happen within the first couple of months, even on the long leap contracts, in order to see a return. Using a Jan 2019 15 strike put it looks like you are seeing a 3% return in May 2018 if the price falls to $10. This seems like not a good return profile and I am wondering if the calculator is not anticipating some factor that you are.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 30, 2017, 09:00:57 AM
I looked up the option price chain for the Jan 2019 20 strikes http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00020000-uvxy-put

If you go to the 1 year view you see some pretty big nose dives in value. What was your logic in your entry point to avoid being on the wrong side?

Additionally I was playing with this profit calculator, here: http://www.optionsprofitcalculator.com/calculator/long-put.html, and it looks like a step fall needs to happen within the first couple of months, even on the long leap contracts, in order to see a return. Using a Jan 2019 15 strike put it looks like you are seeing a 3% return in May 2018 if the price falls to $10. This seems like not a good return profile and I am wondering if the calculator is not anticipating some factor that you are.

My logic isn't in entry point, it is in duration of the expiry.  Short dated options have a high likelihood of a 100% loss of investment.  Given "enough" time, UVXY will always decay a "large" amount.  This ensures, if not a profit, at least some "moneyness" and recovery of part of capital.  You can improve your odds by going into the money.  The deeper you go, the lower your risk and alas lower your return.

You are correct that the best returns come when the decay happens shortly after buying the put.  My two recent sales where 11.6% gain over 175 days and 9.6% over 6 days.  Obviously, you'd rather repeat the 6 day trade.  I once had the position move strongly against me a few days after entering.  I had to hold 317 days to get a good exit point that yielded about 16% annualized.  That is a "weak" return for this strategy but a damn good one for almost any other trade you can expect to make.  And that is why you want the long dated options.  Sometimes you need a little more time to be right, as in sufficiently in the money to profit.
Title: Re: Fun with VIX options
Post by: starguru on September 30, 2017, 09:21:12 AM
I looked up the option price chain for the Jan 2019 20 strikes http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00020000-uvxy-put

If you go to the 1 year view you see some pretty big nose dives in value. What was your logic in your entry point to avoid being on the wrong side?

Additionally I was playing with this profit calculator, here: http://www.optionsprofitcalculator.com/calculator/long-put.html, and it looks like a step fall needs to happen within the first couple of months, even on the long leap contracts, in order to see a return. Using a Jan 2019 15 strike put it looks like you are seeing a 3% return in May 2018 if the price falls to $10. This seems like not a good return profile and I am wondering if the calculator is not anticipating some factor that you are.

My logic isn't in entry point, it is in duration of the expiry.  Short dated options have a high likelihood of a 100% loss of investment.  Given "enough" time, UVXY will always decay a "large" amount.  This ensures, if not a profit, at least some "moneyness" and recovery of part of capital.  You can improve your odds by going into the money.  The deeper you go, the lower your risk and alas lower your return.

You are correct that the best returns come when the decay happens shortly after buying the put.  My two recent sales where 11.6% gain over 175 days and 9.6% over 6 days.  Obviously, you'd rather repeat the 6 day trade.  I once had the position move strongly against me a few days after entering.  I had to hold 317 days to get a good exit point that yielded about 16% annualized.  That is a "weak" return for this strategy but a damn good one for almost any other trade you can expect to make.  And that is why you want the long dated options.  Sometimes you need a little more time to be right, as in sufficiently in the money to profit.

For a beginner strategy is it a good idea to just set a sell price 10% higher than your purchase?  I wonder,  for your options that took 300+ days to turn a profit, if you had other tranches during that 300 days,  would they have turned a profit before the 350 day tranche?


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Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 30, 2017, 11:38:29 AM

For a beginner strategy is it a good idea to just set a sell price 10% higher than your purchase?  I wonder,  for your options that took 300+ days to turn a profit, if you had other tranches during that 300 days,  would they have turned a profit before the 350 day tranche?


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I suppose setting a good till cancel limit order to sell 5-10% above your entry point is reasonable.  I wouldn't set it 50%.  The idea is bunt repeatedly, not hit any grand slams. 

If I had other tranches during the 300 day slump they probably would have turned over faster.  But as a matter of managing my own psychology, I don't want to go down such rabbit holes.  Making "just" 16% annualized on a repeated basis will make you very wealthy over a period of decades.  Trying for more seems like a recipe for shooting yourself in the foot with hubris.  And I frequently make more on shorter trades without even 'reaching'.  At some point you have to recognize when you are at 'enough'.
Title: Re: Fun with VIX options
Post by: starguru on September 30, 2017, 12:18:37 PM

For a beginner strategy is it a good idea to just set a sell price 10% higher than your purchase?  I wonder,  for your options that took 300+ days to turn a profit, if you had other tranches during that 300 days,  would they have turned a profit before the 350 day tranche?


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I suppose setting a good till cancel limit order to sell 5-10% above your entry point is reasonable.  I wouldn't set it 50%.  The idea is bunt repeatedly, not hit any grand slams. 

If I had other tranches during the 300 day slump they probably would have turned over faster.  But as a matter of managing my own psychology, I don't want to go down such rabbit holes.  Making "just" 16% annualized on a repeated basis will make you very wealthy over a period of decades.  Trying for more seems like a recipe for shooting yourself in the foot with hubris.  And I frequently make more on shorter trades without even 'reaching'.  At some point you have to recognize when you are at 'enough'.

Interesting what you mention re psychology.  I have about 150k coming to me in the next 3 weeks or so.  I’ll have to restrain myself. 

I was thinking of buying one or two contracts a month so as to get a pipeline effect going, and reducing my risk of losing the entire investment.


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Title: Re: Fun with VIX options
Post by: hgjjgkj on September 30, 2017, 12:49:45 PM
I looked up the option price chain for the Jan 2019 20 strikes http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00020000-uvxy-put

If you go to the 1 year view you see some pretty big nose dives in value. What was your logic in your entry point to avoid being on the wrong side?

Additionally I was playing with this profit calculator, here: http://www.optionsprofitcalculator.com/calculator/long-put.html, and it looks like a step fall needs to happen within the first couple of months, even on the long leap contracts, in order to see a return. Using a Jan 2019 15 strike put it looks like you are seeing a 3% return in May 2018 if the price falls to $10. This seems like not a good return profile and I am wondering if the calculator is not anticipating some factor that you are.

My logic isn't in entry point, it is in duration of the expiry.  Short dated options have a high likelihood of a 100% loss of investment.  Given "enough" time, UVXY will always decay a "large" amount.  This ensures, if not a profit, at least some "moneyness" and recovery of part of capital.  You can improve your odds by going into the money.  The deeper you go, the lower your risk and alas lower your return.

You are correct that the best returns come when the decay happens shortly after buying the put.  My two recent sales where 11.6% gain over 175 days and 9.6% over 6 days.  Obviously, you'd rather repeat the 6 day trade.  I once had the position move strongly against me a few days after entering.  I had to hold 317 days to get a good exit point that yielded about 16% annualized.  That is a "weak" return for this strategy but a damn good one for almost any other trade you can expect to make.  And that is why you want the long dated options.  Sometimes you need a little more time to be right, as in sufficiently in the money to profit.


First, I wanted to say thanks FinanceVelociraptor. It is so hard to find people willing to share their experience in this arena and you have been extremely helpful. This is one of my favorite things to talk about / study and it is hard to find engaging conversation and quality writing on it like you have provided on this thread and your site. I want to be cognizant of your time but did want to share some additional thoughts.

I think I understand your position that taking the long view is what creates value in this trade. But to me there are a couple of risk factors.

1) As mentioned in my previous comment, I am still wondering how much entry matters. For example, consider today. VIX is at $9.50 which is nearly a 52 week low. Yahoo says 8.84 is the low, but I do not see that actual dot on their chart.  UVXY is at 20.58 which is right on its low of 20.51.

At the risk of seeming to peer into a fake crystal ball, I wonder if it is a bad idea to buy then because it seems more likely that VIX would rise, UVXY would rise at some factor, and then possibly the decline would not be swift enough for your position to make money. Though I wonder if I am wrong because when you bought on SEPT 12, that was the then low for UVXY. On SEPT 12, VIX was slightly higher, but had declined from a recent 20% spike (going from 10-12 the week of September the 5th).

2) is the reverse splits, if liquidity dries up when a reverse splits happen, if you are holding when a reverse split happens, are you not forced to sell before the split, or risk paying terrible spreads? Does this effectively limit the time horizon of you options? Put another way in case that is confusing. Say you have an 18 month leap, but UVXY reverse splits every 6 months (just making a number up) then due to liquidity issues you do not really have 18 months to make money, you have about 6. No?

I tried to do some more analysis, with the hypothesis that for example if UVXY is above its 30 or 50 day SMA, then this trade is good. Now I dont have access to historical option prices, but you can see that typically when this occurs (and it doesnt happen off in bull markets) that UVXY does fall precipitously. What keeps me from saying do this every time there is a spike in UVXY, is that I do not understand what the vega risk would be during a time of spiking VIX. I wonder if it would be similar to getting vol crushed if you buy and OTM SPY call after a fall in SPY, where even if SPY recovers, too much of the value of the option is in volatility, so you end up losing money. Did you worry about Vega risk when entering your position on 9/12 as it came after a recent VIX bump up? Perhaps you feel the contango phenomenon trumps all of these considerations....
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 30, 2017, 01:18:18 PM
If you'd like to pursue this trade, but don't feel good about the loss potential, you could try a bear put spread for a lower risk/reward.

https://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_put_spread.html?prt=mx
 (https://www.optionseducation.org/strategies_advanced_concepts/strategies/bear_put_spread.html?prt=mx)

E.g. for the Jan 2019 expiration, buy the $20 put and sell the $10 put. You buy the $20 strike for $12.32 and sell the $10 strike for $4.75 (I'm assuming you make offers until you execute somewhere between Friday's 9/29/17 bid/ask) for a total net outlay of $12.32-$4.75 = $7.57.

Your maximum gain at expiration, if UVXY is below $10, would be $20 - $10 - $7.57 = $2.43. That's a 32% gain spread over 1.3 years, or 24.6% annualized.*
Your maximum loss if UVXY fails to decline below $20 and both options expire OTM is $7.57. That's still 100% of your initial outlay, BUT that's 38% less money at risk per share than the $12.32 outlay you'd need to only buy the puts at the $20 strike. I.e. instead of risking $1,232 per contract you're risking $757.

*Note that you would want to sell and reestablish your position the next time they reverse split. Also, it's unlikely you would hold the options until maturity because 1) that leaves no time for an exit in the event of a spike right before maturity, and 2) you might hit your max profit from the setup well before then. Expect to hold 6-12 months and then roll to the next expiry. Transaction costs not included.

A bear call spread has the same profit/loss curve as a bear put spread, but you take a credit upfront instead of a debit. I can't recommend that though, because of the greater risk of being assigned early.
Title: Re: Fun with VIX options
Post by: ChpBstrd on September 30, 2017, 01:47:27 PM
I looked up the option price chain for the Jan 2019 20 strikes http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00020000-uvxy-put

If you go to the 1 year view you see some pretty big nose dives in value. What was your logic in your entry point to avoid being on the wrong side?

Additionally I was playing with this profit calculator, here: http://www.optionsprofitcalculator.com/calculator/long-put.html, and it looks like a step fall needs to happen within the first couple of months, even on the long leap contracts, in order to see a return. Using a Jan 2019 15 strike put it looks like you are seeing a 3% return in May 2018 if the price falls to $10. This seems like not a good return profile and I am wondering if the calculator is not anticipating some factor that you are.

My logic isn't in entry point, it is in duration of the expiry.  Short dated options have a high likelihood of a 100% loss of investment.  Given "enough" time, UVXY will always decay a "large" amount.  This ensures, if not a profit, at least some "moneyness" and recovery of part of capital.  You can improve your odds by going into the money.  The deeper you go, the lower your risk and alas lower your return.

You are correct that the best returns come when the decay happens shortly after buying the put.  My two recent sales where 11.6% gain over 175 days and 9.6% over 6 days.  Obviously, you'd rather repeat the 6 day trade.  I once had the position move strongly against me a few days after entering.  I had to hold 317 days to get a good exit point that yielded about 16% annualized.  That is a "weak" return for this strategy but a damn good one for almost any other trade you can expect to make.  And that is why you want the long dated options.  Sometimes you need a little more time to be right, as in sufficiently in the money to profit.


First, I wanted to say thanks FinanceVelociraptor. It is so hard to find people willing to share their experience in this arena and you have been extremely helpful. This is one of my favorite things to talk about / study and it is hard to find engaging conversation and quality writing on it like you have provided on this thread and your site. I want to be cognizant of your time but did want to share some additional thoughts.

I think I understand your position that taking the long view is what creates value in this trade. But to me there are a couple of risk factors.

1) As mentioned in my previous comment, I am still wondering how much entry matters. For example, consider today. VIX is at $9.50 which is nearly a 52 week low. Yahoo says 8.84 is the low, but I do not see that actual dot on their chart.  UVXY is at 20.58 which is right on its low of 20.51.

At the risk of seeming to peer into a fake crystal ball, I wonder if it is a bad idea to buy then because it seems more likely that VIX would rise, UVXY would rise at some factor, and then possibly the decline would not be swift enough for your position to make money. Though I wonder if I am wrong because when you bought on SEPT 12, that was the then low for UVXY. On SEPT 12, VIX was slightly higher, but had declined from a recent 20% spike (going from 10-12 the week of September the 5th).

2) is the reverse splits, if liquidity dries up when a reverse splits happen, if you are holding when a reverse split happens, are you not forced to sell before the split, or risk paying terrible spreads? Does this effectively limit the time horizon of you options? Put another way in case that is confusing. Say you have an 18 month leap, but UVXY reverse splits every 6 months (just making a number up) then due to liquidity issues you do not really have 18 months to make money, you have about 6. No?

I tried to do some more analysis, with the hypothesis that for example if UVXY is above its 30 or 50 day SMA, then this trade is good. Now I dont have access to historical option prices, but you can see that typically when this occurs (and it doesnt happen off in bull markets) that UVXY does fall precipitously. What keeps me from saying do this every time there is a spike in UVXY, is that I do not understand what the vega risk would be during a time of spiking VIX. I wonder if it would be similar to getting vol crushed if you buy and OTM SPY call after a fall in SPY, where even if SPY recovers, too much of the value of the option is in volatility, so you end up losing money. Did you worry about Vega risk when entering your position on 9/12 as it came after a recent VIX bump up? Perhaps you feel the contango phenomenon trumps all of these considerations....

1) Unlike most directional options bets, this is not an exercise in market timing. It's a bet on UVXY being a long-term value-destruction machine. UVXY has a good chance of falling fast enough that today's price will be higher than the spike during the next North Korean missile launch or irresponsible tweet. Also, see #3 below.

2) Velociraptor and I can both report that liquidity is just fine post reverse split. In a 5:1 reverse split, your options' strike price stays the same, but each contract now represents 20 shares instead of 100. Also, the price of UVXY increases 5X. This means your formerly ITM put options may now be OTM. If you hold these options with not much time remaining, suddenly being OTM may be problematic. delta and everything else move around. The one time I sold my UVXY puts for a small loss was when a 5:1 split happened and I had 2 weeks until maturity (trying to hit home runs)! Lesson: only go long with this strategy.

3) Vega is a paradox with this trade. UVXY is a trade on volatility, and yet volatility influences its options prices. Market volatility can cause UVXY's price to increase, resulting in a decrease in the price of put options (delta). However, increased volatility in the price of UVXY itself is a factor pushing up the price of its options (vega). Vega offsets some of the change from delta, acting as a shock absorber of sorts for the owners of puts. Some advisors (e.g. optionsalpha.com ) recommend selling options during bouts of high volatility and buying when volatility is low. However, when you're playing market volatility against stock volatility, I'm not sure there's as much to gain.
Title: Re: Fun with VIX options
Post by: jcan on September 30, 2017, 06:34:22 PM
Have you tried to sell calls vs buying puts ?


There is a better way to play the ^VIX mania.  For about 7 years now I have made over 30% annualized on a repeatable trade.  What you want to do is use options to short UVXY.  That is a double leveraged ETN that (badly) tracks movements in ^VIX.  The way the fund is constructed is they buy the 14 and 40 day futures and roll them daily.  Contango in the futures market causes them to (85% of the time or better) sell a "cheap" asset to buy an "expensive" one.  This results in a predictable long term decay that is currently averaging around 87% a year.  Reviewing the price history on Yahoo!, I have been unable to find any 12 month period where the note was up in price (it isn't even close). 

LEAP options are available and I have never lost money by buying long dated put options and holding on while waiting for decay to work its magic.  I currently hold the 18JAN2019 expiry 20 puts.  I purchased them on 12SEP2017 for 11.57 a share (1,157 per contract).  Ten days later the bid/ask split is 12.35, suggesting a 246.07% annualized return.  I have a good till canceled limit order to jump off at 12.55. 

I have completed this trade dozens of times over the last 7 years (well sort of, I started with an unleveraged version of this fund) and have been known to book profits as high as 500% annualized.  The worst I have ever done is 16% annualized.  I document every one of these trades now on my blog.  It is my highest conviction idea and was hugely important to allowing me to FIRE on 5OCT2012 at the age of 40. 

Your current trade carries a significant risk of a 100% loss.  You can stack the odds in your favor by buying long dated puts, especially deep in the money if you want to reduce risk.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 30, 2017, 09:20:45 PM

First, I wanted to say thanks FinanceVelociraptor. It is so hard to find people willing to share their experience in this arena and you have been extremely helpful. This is one of my favorite things to talk about / study and it is hard to find engaging conversation and quality writing on it like you have provided on this thread and your site. I want to be cognizant of your time but did want to share some additional thoughts.

I think I understand your position that taking the long view is what creates value in this trade. But to me there are a couple of risk factors.

1) As mentioned in my previous comment, I am still wondering how much entry matters. For example, consider today. VIX is at $9.50 which is nearly a 52 week low. Yahoo says 8.84 is the low, but I do not see that actual dot on their chart.  UVXY is at 20.58 which is right on its low of 20.51.

At the risk of seeming to peer into a fake crystal ball, I wonder if it is a bad idea to buy then because it seems more likely that VIX would rise, UVXY would rise at some factor, and then possibly the decline would not be swift enough for your position to make money. Though I wonder if I am wrong because when you bought on SEPT 12, that was the then low for UVXY. On SEPT 12, VIX was slightly higher, but had declined from a recent 20% spike (going from 10-12 the week of September the 5th).

2) is the reverse splits, if liquidity dries up when a reverse splits happen, if you are holding when a reverse split happens, are you not forced to sell before the split, or risk paying terrible spreads? Does this effectively limit the time horizon of you options? Put another way in case that is confusing. Say you have an 18 month leap, but UVXY reverse splits every 6 months (just making a number up) then due to liquidity issues you do not really have 18 months to make money, you have about 6. No?

I tried to do some more analysis, with the hypothesis that for example if UVXY is above its 30 or 50 day SMA, then this trade is good. Now I dont have access to historical option prices, but you can see that typically when this occurs (and it doesnt happen off in bull markets) that UVXY does fall precipitously. What keeps me from saying do this every time there is a spike in UVXY, is that I do not understand what the vega risk would be during a time of spiking VIX. I wonder if it would be similar to getting vol crushed if you buy and OTM SPY call after a fall in SPY, where even if SPY recovers, too much of the value of the option is in volatility, so you end up losing money. Did you worry about Vega risk when entering your position on 9/12 as it came after a recent VIX bump up? Perhaps you feel the contango phenomenon trumps all of these considerations....

Thank you for the kind words, hgjjgkj.  That is an interesting username.  I'd try to phonetically pronounce it except there are no vowels. 

1)  My "evidence" is experiential/anecdotal and not academic.  But in my efforts, it has been better to buy when vol is "low".  When vol is "high" time value premiums are kind of plump.  The underlying is more likely to decline but the time value usually declines faster.  On a long dated option, that makes a huge difference.  I have been known to buy during very low ^VIX, and sell for a profit into a vol spike as time value actually increases as I move further out of the money.  That is what happened on my most recent sell.  Vol spiked 5 days into the trade.  On day 6, I sold for a 9.66% gross profit or 587.56% annualized.  I stayed out of the trade for a couple weeks waiting for another low ^VIX day to re-establish a position.

2) REVERSE SPLITS - I have never bothered to exit the trade because I was fearful of holding split adjusted contracts.  The liquidity is still just fine in my experience.  There seems to be a faction of some type that is making bid/ask spreads into some sort of boogeyman that devours returns.  You never want to pay the ask or sell for the bid.  Somewhere in the middle of those two numbers, the market maker will take action if you enter a limit order and be patient.  Almost always the very same day for me.  It's the same way after a split.  Getting filled between the bid/ask is a matter of waiting for a MM to find an arbitrage opportunity of a few pennies a share.  Yes, you technically got "taken" but I think of the MM as providing a valuable service for a reasonable fee.  He/she certainly spares you the full cost of the bid/ask spread.  Don't fear the reverse splits or bid/ask spreads.  Use limit orders and sit on your hands.  Patience while stalking prey is the Velociraptor way.

3) CONTANGO - When magnified with double leverage, this is a powerful force.  But only over "long" periods of time.  A skilled technical analyst might be able to make big time gains by using volatility events to trigger opening positions on short dated options (at much greater risk however).  That isn't my game.  Reading charts is too much like astrology to me.  Using time arbitrage on contango is something I have found remarkably reliable.  Nine months down and I'm up about 30% despite having one of my positions move strongly against me this year.  I would have likely lost money on half my positions if I was buying puts with a first or second month expiry.  With the LEAP, I have always recovered.  Take a look here: https://finance.yahoo.com/quote/UVXY/performance?p=UVXY (https://finance.yahoo.com/quote/UVXY/performance?p=UVXY).  The best calendar year for UVXY saw a decline of 62.59%.  So even when luck is not on your side, you can reasonably expect to at least come close to break even given a year or longer to capture contango decline. 
Title: Re: Fun with VIX options
Post by: hgjjgkj on September 30, 2017, 10:01:39 PM



I forgot my name is gibberish. Your reply makes sense. I definitely think experience is valuable here just because option price history is so hard to get a hold of and backtest on. I am also going to give this a shot and will report back for better or for ill. Though I would mention for future readers Merill does not allow trading options on this ETF. Some random rule about ETFs that involve futures. I applied for an IB account and hope to be running in a few days
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on September 30, 2017, 10:03:40 PM



I forgot my name is gibberish. Your reply makes sense. I definitely think experience is valuable here just because option price history is so hard to get a hold of and backtest on. I am also going to give this a shot and will report back for better or for ill. Though I would mention for future readers Merill does not allow trading options on this ETF. Some random rule about ETFs that involve futures. I applied for an IB account and hope to be running in a few days

Brokerages that weird restrictions on their customers annoy me.  Treat your clients like adults already!  IB has been great for trading options.
Title: Re: Fun with VIX options
Post by: jacquespluto on October 01, 2017, 01:42:47 AM
I use VIX call options for my style of trading like I do with auto/home insurance.  I hope I don't need them, but in the case of emergency I'll be glad they are there.  I buy very cheap, far out of the money call options for black swan event protection which would otherwise be devastating for my trade positions.  VIX tends to be a little sticky when those type of events happen which allows plenty of time to get out.

Before I get raked over the coals, no I'm not using a large portion of my net worth for this trading.  Yes, it is very profitable and I have a very strong background in this arena - it's definitely not for everyone.  I'm a net seller of time premium and not in the form of basic credit spreads.  Ok, that's it :)
Title: Re: Fun with VIX options
Post by: Pizzabrewer on October 01, 2017, 02:45:29 AM
Ptf
Title: Re: Fun with VIX options
Post by: starguru on October 01, 2017, 09:26:12 AM

2) Velociraptor and I can both report that liquidity is just fine post reverse split. In a 5:1 reverse split, your options' strike price stays the same, but each contract now represents 20 shares instead of 100. Also, the price of UVXY increases 5X. This means your formerly ITM put options may now be OTM. If you hold these options with not much time remaining, suddenly being OTM may be problematic. delta and everything else move around. The one time I sold my UVXY puts for a small loss was when a 5:1 split happened and I had 2 weeks until maturity (trying to hit home runs)! Lesson: only go long with this strategy.

I thought on splits and reverse splits there was a "conservation of value" effect going on.  If you own a stock and there is a split, the value of your investment stays the same.  What you are saying is that there is no conservation going on when dealing with options?  Not only can you go from ITM to OTM, but your contracts no only represent 20 shares, so if you sell your options you will make less profit.  Seems like reverse splits are completely destructive to this strategy, at least for any tranches that get hit with a reverse split....cost of pursuing the strategy?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 01, 2017, 02:26:03 PM

I thought on splits and reverse splits there was a "conservation of value" effect going on.  If you own a stock and there is a split, the value of your investment stays the same.  What you are saying is that there is no conservation going on when dealing with options?  Not only can you go from ITM to OTM, but your contracts no only represent 20 shares, so if you sell your options you will make less profit.  Seems like reverse splits are completely destructive to this strategy, at least for any tranches that get hit with a reverse split....cost of pursuing the strategy?

Conservation of value still applies.  If you are at the 25 strike and there is a 1:4 split, you now control 25 shares at 100.  Yahoo Finance is bugged on that point and continues to report the strike as 25.  Your broker should report the contracts as UVXY1, UVXY2, UVXY3 etc.  They still carry the original nomenclature but the additional digit after the ticker denotes the post split status.

Title: Re: Fun with VIX options
Post by: starguru on October 01, 2017, 03:26:38 PM

I thought on splits and reverse splits there was a "conservation of value" effect going on.  If you own a stock and there is a split, the value of your investment stays the same.  What you are saying is that there is no conservation going on when dealing with options?  Not only can you go from ITM to OTM, but your contracts no only represent 20 shares, so if you sell your options you will make less profit.  Seems like reverse splits are completely destructive to this strategy, at least for any tranches that get hit with a reverse split....cost of pursuing the strategy?

Conservation of value still applies.  If you are at the 25 strike and there is a 1:4 split, you now control 25 shares at 100.  Yahoo Finance is bugged on that point and continues to report the strike as 25.  Your broker should report the contracts as UVXY1, UVXY2, UVXY3 etc.  They still carry the original nomenclature but the additional digit after the ticker denotes the post split status.

Right but you can move from ITM to OTM on a split.  If value was conserved wouldn’t the number of shares AND the strike price on the contract change?


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Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 01, 2017, 05:22:57 PM

Right but you can move from ITM to OTM on a split.  If value was conserved wouldn’t the number of shares AND the strike price on the contract change?


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You can't move from ITM to OTM based on a split/reverse-split.  If you hold the 25 contract pre-split, you control $2,500 of underlying: 25 dollars times 100 shares.  If there is a 1:4 split, you control 25 shares at a strike of 100.  Still $2,500 of underlying.  Yahoo Finance displays this incorrectly and creates a lot of confusion.  Your premium will not change after the split.  If you were holding options worth $1,300 before the split, they would still sell in the market for about $1,300 after the split.  And the liquidity to be found between the bid/ask would be little changed.  I think of it as a non-event.
Title: Re: Fun with VIX options
Post by: trollwithamustache on October 02, 2017, 08:26:01 AM

Sent from my iPhone using Tapatalk
.  I think of it as a non-event.

Non Event?  The splits are more of  a Milestone of the fascinating continued, relentless decay of these types of securities.
Title: Re: Fun with VIX options
Post by: Pizzabrewer on October 02, 2017, 08:48:19 AM
What platform are you trading these on?  TDAm only shows options available out to June 2018.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 02, 2017, 09:29:13 AM
What platform are you trading these on?  TDAm only shows options available out to June 2018.

Interactive Brokers
Title: Re: Fun with VIX options
Post by: starguru on October 02, 2017, 10:21:06 AM
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)? 
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 02, 2017, 02:50:02 PM
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/ (http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/)

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.
Title: Re: Fun with VIX options
Post by: starguru on October 03, 2017, 11:02:48 AM
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/ (http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/)

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

FV my question was about when purchasing the put.  Is it ok to have a GTC order, or should the order by more limited in time?  But it also applies to selling.  I read your article and am confused by

"I had a good till canceled sell order open on my UVXY puts at 12.55 which triggered this morning.  It is important to use a limit order and not pay the bid/ask spread.  But I don’t think I’ll use a good till canceled order again.  Contracts were going for 12.74 shortly after my shares cleared at open so it looks like I left some money on the table in exchange for some minor convenience."

So if you don't use a GTC what will you use?  Since this is a highly volatile security how can you know if you selling at the right time?  Isn't is possible to briefly cross your asking price, triggering your sell, and then immediately drop to under where your sell would trigger?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 03, 2017, 09:02:08 PM
FV my question was about when purchasing the put.  Is it ok to have a GTC order, or should the order by more limited in time?  But it also applies to selling.  I read your article and am confused by

"I had a good till canceled sell order open on my UVXY puts at 12.55 which triggered this morning.  It is important to use a limit order and not pay the bid/ask spread.  But I don’t think I’ll use a good till canceled order again.  Contracts were going for 12.74 shortly after my shares cleared at open so it looks like I left some money on the table in exchange for some minor convenience."

So if you don't use a GTC what will you use?  Since this is a highly volatile security how can you know if you selling at the right time?  Isn't is possible to briefly cross your asking price, triggering your sell, and then immediately drop to under where your sell would trigger?

Ok, I see now.  It may just be bad psychology on my part.  I sold at 12.55 at open and saw 12.70-12.75 basically all day long after that.  You are of course right, it could have moved in the other direction after open.  I had predetermined 12.55 was a reasonable exit, a superb one really, and then got butthurt about making "only" 154.58% annualized.  Talk about first world problems.  I think since I have time to check in on my position daily, I'll set fresh limits daily instead of using GTC.  GTC might make more sense if you are still busy with career and can't babysit the market.  Or if you detest watching the market, which is something I happen to love.
Title: Re: Fun with VIX options
Post by: hgjjgkj on October 11, 2017, 10:08:38 PM
After a long wait to set up an IB account, I have finally placed an order. Tried to buy the Jan 19 15 strike put set a daily limit order at 8.96 with the Bid Ask bein 8.80 and 9.10. Curious to see how this goes
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 12, 2017, 10:43:18 AM
Did you get a fill?
Title: Re: Fun with VIX options
Post by: hgjjgkj on October 12, 2017, 09:57:09 PM
I did not. spread now goes to 9.20. i have my bid at 9.12 for tomorrow. I am not great at understanding and working within spreads. Update: Still did not fill. I switched to using the dyanmic IB fill order. and I hope it just fills this way
Title: Re: Fun with VIX options
Post by: tsukuba on October 15, 2017, 08:43:48 PM
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/ (http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/)

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.
Title: Re: Fun with VIX options
Post by: starguru on October 16, 2017, 08:26:30 AM
FV

when you put in a bid, do you do a "good until cancelled" order or is that a bad idea?

I just put in a bid for the Jan 2019 19 strike for $11.75.  The ask was 11.95 and I think it filled immediately. 

So what is the next step?  Should I put in some limit order to sell at 12.92 (gain of 10%)?

I tried a GTC for the first time on today's sale.  I think I left some money on the table.  See today's blog post at: http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/ (http://velociraptor.cc/blog/2017/10/02/update-uvxy-4/)

As far as bidding, I usually go a nickle or so higher than the current bid.  You can then check how many contracts are being bid at the new bid.  If it is a "large" number, you are unlikely to get filled.  When you increase the bid to the point that only your shares are at the current bid, it is time to put on your poker face and wait.  You can usually get filled there or a nickle or so higher.  You did well by getting 20 cents or so below the ask though.

Selling around 10% is a fine plan.  I wouldn't use GTC after today's lesson though.

Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

Yes I had that same thought.  A few considerations:

1.  10% requires 10 wins to break even in the event of a wipeout.  Probably more than that factoring in trading costs.  But 15% only requires 6.5, and 20% only requires 5.

2.  The expiration date on these contracts is extremely long; it takes 12+ months to truly lose money on them. 

3.  I'm not sure that if the VIX shoots up, it probably starts declining again very quickly too.  One might be able to hedge by buying more puts in the event of a VIX spike, assuming one has capital to do this.

4.  I've been considering how to pipeline this effectively to reduce the risk of a complete wipeout.  Say I wanted to invest $12000 total.  I could buy one contract a every month for the farthest out expiry option.  If the VIX spikes a few might be at risk, but you are buying new contracts every month, so you might have increased chance of gain after a spike.  The trouble with the pipeline is you never know when you are going to sell any option. 

5.  I'm wondering if a better strategy is to wait say 45 days, and then if the gain is more than 10% take it.  If the gain is less than 10%, set a GTC limit for 10%.  If at any point gain is 25% or more, take it.    Im sort of making up numbers but the idea is see if you can make a >10% profit quickly, and then if you can't shoot for the 10%. 

My first GTC limit is close to hitting.  Im thinking one or two days of VIX falling should do it.
Title: Re: Fun with VIX options
Post by: Refrozen on October 16, 2017, 03:20:24 PM
The number of wins is probably not relevant if you're rolling when you win. The frequency of those wins is more important.

This is only a few days in, but so far the option closest to the money was the biggest winner: https://cl.ly/1L1V3A3i3K3W

I expect there's a discontinuity here that can be exploited, but finding a good data source for historical options pricing seems to be impossible for us little people.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 17, 2017, 07:01:30 AM
Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

I think a true 100% wipeout is extraordinarily unlikely.   I mean there is a non-zero chance but in my experience, after a roughly double in the underlying, I still made almost 16% annualized by just being patient. 

As with any investment, I think reasonable allocation size is key.  It would be reckless to do this with 100% or even 50% of your portfolio.  I allocate 10% which is something I can afford to lose and still remain FIRE.
Title: Re: Fun with VIX options
Post by: tsukuba on October 17, 2017, 11:41:44 PM
Is this 10% enough?  This means you would need near to 10 wins like this to break even with one wipeout in the case the VIX gets active.

I'm noticing these contract prices for UVXY are not cheap.  Considering the contract prices, UVXY has to trend toward quite below the strike price to gain value in your options.  The trend right now is that it does, but there are certainly periods where UVXY is flat or the slope not sufficiently downward for the puts to gain value.

I'm not an options expert or anything.

I think a true 100% wipeout is extraordinarily unlikely.   I mean there is a non-zero chance but in my experience, after a roughly double in the underlying, I still made almost 16% annualized by just being patient. 

As with any investment, I think reasonable allocation size is key.  It would be reckless to do this with 100% or even 50% of your portfolio.  I allocate 10% which is something I can afford to lose and still remain FIRE.

Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 18, 2017, 11:28:11 AM
Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

I usually buy about 30% out of the money and sell when at the money rather than target a profit percentage.  The gross percentage is too volatile because it is influenced by so many factors.  The long term decay is the reliable part.  Below are the gross percentage gains, expressed as a decimal from my last five completed trades:

0.03539823
0.05019305
0.115853659
0.096585366
0.084701815
Title: Re: Fun with VIX options
Post by: starguru on October 18, 2017, 12:02:45 PM
Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

I usually buy about 30% out of the money and sell when at the money rather than target a profit percentage.  The gross percentage is too volatile because it is influenced by so many factors.  The long term decay is the reliable part.  Below are the gross percentage gains, expressed as a decimal from my last five completed trades:

0.03539823
0.05019305
0.115853659
0.096585366
0.084701815

So you are selling with a 3% gain sometimes?  Does that include trading costs?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on October 18, 2017, 05:01:03 PM


So you are selling with a 3% gain sometimes?  Does that include trading costs?

That was 3% gross.  It was only over 48 days so 26.93% annualized.  That does not include trading costs but my commission at Interactive Brokers are trivial.  Usually 75 cents per contract.
Title: Re: Fun with VIX options
Post by: hgjjgkj on October 18, 2017, 08:29:46 PM
For what its worth i finally got in. 15@ 9.85. above the ask somehow. Got absolutely crushed by the spread
Title: Re: Fun with VIX options
Post by: tsukuba on October 18, 2017, 09:45:42 PM
Hi F.-V.,
Thanks a lot for all your information on this thread--very instructive.
What is your typical non-annualized % gain you are targeting before selling (following up on starguru's Reply #73 just above)

Best regards-

I usually buy about 30% out of the money and sell when at the money rather than target a profit percentage.  The gross percentage is too volatile because it is influenced by so many factors.  The long term decay is the reliable part.  Below are the gross percentage gains, expressed as a decimal from my last five completed trades:

0.03539823
0.05019305
0.115853659
0.096585366
0.084701815

Thank you for clarifying the picture, F.-V.
Best wishes-
Title: Re: Fun with VIX options
Post by: starguru on October 19, 2017, 11:28:43 AM


So you are selling with a 3% gain sometimes?  Does that include trading costs?

That was 3% gross.  It was only over 48 days so 26.93% annualized.  That does not include trading costs but my commission at Interactive Brokers are trivial.  Usually 75 cents per contract.

Hmm, maybe I should rethink my trying to make 10% strategy.  Fidelity is charging 4.95 + .65 per contract, so at some point Fidelity is cheaper (around 11 or 12 contracts) but I am not buying that much.  If the strategy is to make $30 at a time trading costs have to be considered.
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 04, 2017, 03:20:26 PM
That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 
Financial.Velociraptor,

Thank you for your thorough explanation of this interesting
trade.

I found it so intriguing that I was actually motivated to
register on this site just to pose a question.

If I've digested your thoughts correctly, it seems each
trade is oriented toward achieving an approximate x%
annualized return.  Then you close it for a profit, and
turn around immediately and open another position.
Rinse and repeat.

I might have oversimplified it a bit, but that's the rough
gist of my takeaway. If I've understood it fairly correctly,
wouldn't it make sense to add a minimum 3 month
holding period into the discipline; or at least 3 months
between opening positions?


My thoughts are that a new LEAP expiry opens up only
every 3 months.  If you close a position earlier than 3
months, and then immediately open another position
with the same expiry as the one you just closed, aren't
you really just churning trading fees without reducing
your risk by rolling out to a longer-dated LEAP?

Maybe I'm missing something fundamental.  Perhaps
the 2nd position would be at another strike, and would
therefore be more advantageous?  Or could be gotten
at a lower volatility if you're prepared to wait a few
days to put the new trade on?

Any thoughts you might have would be appreciated!
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 04, 2017, 05:41:18 PM
That is about 30% return over just 9 months of the year.  I expect to sell another put at 12.55 soon for a profit of 2,646 and the holding period will likely be shorter than 30 days.  The WORST I have ever done with this strategy is 16% annualized. 
Financial.Velociraptor,

Thank you for your thorough explanation of this interesting
trade.

I found it so intriguing that I was actually motivated to
register on this site just to pose a question.

If I've digested your thoughts correctly, it seems each
trade is oriented toward achieving an approximate x%
annualized return.  Then you close it for a profit, and
turn around immediately and open another position.
Rinse and repeat.

I might have oversimplified it a bit, but that's the rough
gist of my takeaway. If I've understood it fairly correctly,
wouldn't it make sense to add a minimum 3 month
holding period into the discipline; or at least 3 months
between opening positions?


My thoughts are that a new LEAP expiry opens up only
every 3 months.  If you close a position earlier than 3
months, and then immediately open another position
with the same expiry as the one you just closed, aren't
you really just churning trading fees without reducing
your risk by rolling out to a longer-dated LEAP?

Maybe I'm missing something fundamental.  Perhaps
the 2nd position would be at another strike, and would
therefore be more advantageous?  Or could be gotten
at a lower volatility if you're prepared to wait a few
days to put the new trade on?

Any thoughts you might have would be appreciated!

Ilikedividends,

You have the concept right.  In my experience new LEAPs for UVXY only open in November.  What I'm really doing is trying to balance risk and reward.  I go about a third out of the money and expect to hold at least a month under normal circumstances.  I could earn a higher annualized return by going even further out of the money but only at the "cost" of increasing my risk.  Note I'm not defining risk in the academic finance way of volatility but in terms of the loss of investment.  There is a non-zero chance with this trade that I could end up with a 100% loss of investment.  Choosing a high(er) strike price lowers this risk. 

What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

As far as trying to 'time' volatility by waiting a few days before rolling, since the underlying is typically falling to approach the strike on the date of sell, you already are at a low volatility point in time.  I prefer maximizing my time in the market instead. 

And trading costs are immaterial for me.  I am at Interactive Brokers and usually pay 70 cents or less per contract.  Against a 500 dollar or more contract it just doesn't matter even when you pay that twice to round trip the trade.

Hope this helps.
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 04, 2017, 06:21:50 PM
In my experience new LEAPs for UVXY only open in November.

Hm.  When I look at 2018 (not for opening a position, just for comparison), I see expiries in Jan, Mar, and Jun,
but curiously, no expiries in Sept.  It was that which lead me to believe that new LEAPS opened every 3 months
(with the exception of the last 3 months of the calendar year)  Of course correlation does not equal causation, so my assumption could be groundless.  I suppose, in this time frame, those 2018 expiries could just be quarterly options opened every 12 months or so.

What you don't want to do is hold past the point the option moves into the money.
Ah, that makes sense!  In the unlikely event that I am correct about being able to roll out to a later expiry every quarter, then it would seem reasonable to pinpoint my exit point with a rule of (at the money OR a new expiry is available), but only so long as the exit can be done profitably.  Hmm, actually, even at break-even, rolling out would seem advisable, even if only to reduce the risk of 100% loss by another 3 months (or by 12 months, if new LEAPS are listed annually).

If a new expiry is available, then I roll down (if possible) and out; otherwise, I just roll down to the ~30% OTM strike after exiting the ATM (or near-ATM--to allow room for artistry) strike. These rules would seem applicable regardless of whether new LEAPS are available quarterly or annually.

Sound reasonable?

Hope this helps.
It most assuredly does.  Every post you make on this trade brings more clarity.

Thanks!
Title: Re: Fun with VIX options
Post by: starguru on November 05, 2017, 08:51:37 AM
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 05, 2017, 08:52:27 AM

Hm.  When I look at 2018 (not for opening a position, just for comparison), I see expiries in Jan, Mar, and Jun,
but curiously, no expiries in Sept.  It was that which lead me to believe that new LEAPS opened every 3 months
(with the exception of the last 3 months of the calendar year)  Of course correlation does not equal causation, so my assumption could be groundless.  I suppose, in this time frame, those 2018 expiries could just be quarterly options opened every 12 months or so.


Somewhere in November the most distant January LEAP comes out.  Shorter duration contracts come out interstitially but if you want the longest dated put, you'll be buying a January 20xx, issued each mid November.

Glad I could help.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 05, 2017, 08:57:09 AM
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

Maybe I wasn't clear?  Time value increases (all other things held equal) as you approach the strike price.  This holds true whether you start out of the money or in the money.  You curiously have more time value at the strike than you do 5 dollars in the money.  Likewise, you have more time value at the strike than you do 5 dollars out of the money.  The guys who figured that out won a Nobel Prize for their effort. 
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 05, 2017, 11:10:08 AM

Hm.  When I look at 2018 (not for opening a position, just for comparison), I see expiries in Jan, Mar, and Jun,
but curiously, no expiries in Sept.  It was that which lead me to believe that new LEAPS opened every 3 months
(with the exception of the last 3 months of the calendar year)  Of course correlation does not equal causation, so my assumption could be groundless.  I suppose, in this time frame, those 2018 expiries could just be quarterly options opened every 12 months or so.


Somewhere in November the most distant January LEAP comes out.  Shorter duration contracts come out interstitially but if you want the longest dated put, you'll be buying a January 20xx, issued each mid November.

Glad I could help.
Serendipity has been a good friend of mine on many occasions over the course of my life.

Stumbling into this forum, and into this thread specifically, mere days before the new LEAPS come out for 2020, I expect will prove to have been yet one more in a series of happy coincidences.

I expect the 20s will decay more slowly than the 19s, a definite plus with this trade, but the main appeal to me is that it will give me 24+ months of runway to start out with on my first trade.  That's well worth waiting for a few more days.

I will begin my first experiment with this trade in a week or two with the Jan 20s.

Chow down, Raptor!  And thanks again. I'd rather be lucky, than smart.  ;)

 

Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 05, 2017, 06:16:18 PM


Chow down, Raptor!  And thanks again. I'd rather be lucky, than smart.  ;)

Achieve Financial Escape Velocity - Devour your prey!
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 08:21:34 AM
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

Maybe I wasn't clear?  Time value increases (all other things held equal) as you approach the strike price.  This holds true whether you start out of the money or in the money.  You curiously have more time value at the strike than you do 5 dollars in the money.  Likewise, you have more time value at the strike than you do 5 dollars out of the money.  The guys who figured that out won a Nobel Prize for their effort.

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask. 
Title: Re: Fun with VIX options
Post by: ChpBstrd on November 06, 2017, 09:02:27 AM
What you don't want to do is hold past the point the option moves into the money.  At that point, your time value as a percentage of the strike is falling instead of rising.  Sure, you are picking up intrinsic value but there is "more meat on the bone" if you roll down (and out if a later expiry comes available).  Likewise, you could increase returns by buying puts with much shorter expiries but this comes at increased risk of loss of capital.  I might be trying that if I was still in the accumulation phase but as a FIRE person, preservation of capital is concern number one.  So basically, to hold the contract longer, I'd have to go further out of the money and increase risk.

Well crap, I never got the point where you are not supposed to hold past when the option moves into the money.   I think you are saying that "delta" on the position is higher when the option is out is out the money.   

It's interesting that my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 (100 SHS) options have only gained 3%, while my PUT (UVXY) PROSHARES TR II JAN 18 19 $19 (100 SHS)  position is up about 7%.  I bought both when the price of the underlying was $1 higher than the strike.  Maybe Ill sell both positions and rebuy on a strike that is more OTM.

Maybe I wasn't clear?  Time value increases (all other things held equal) as you approach the strike price.  This holds true whether you start out of the money or in the money.  You curiously have more time value at the strike than you do 5 dollars in the money.  Likewise, you have more time value at the strike than you do 5 dollars out of the money.  The guys who figured that out won a Nobel Prize for their effort.

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask.

Yea, check the bid-ask spread. Your brokerage probably quotes the value of your long options as the bid price, and the value of your short options as the ask price. This becomes confusing when the bid-ask spread is 10-20% apart! Actually, the value you could trade your positions for at any given moment is some hypothetical number in between the bid-ask. Some of my UVXY puts are quoted as "down" 11% today, even as UVXY has fallen 1%! Upon closer analysis, I'm actually up slightly.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 06, 2017, 10:30:34 AM

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask.

When you are out of the money, the entire premium is time value.  If you do like I do and target to sell at the money, your entire cost and profit are determined by time value.  If you buy or hold into the money, intrinsic value starts to become part of the equation and that can get a little messy mathematically.

In the case of your trade, time value can be a higher or lower percentage of the strike at any time based on the current volatility.  This can result in some peculiar short term price behavior.  I've been known to sell into sharp spikes in volatility because even though the underlying was moving against me, premiums were inflating.  There are a lot of moving parts here and the only piece that is nearly certain is the long term decay of the underlying due to contango in the futures markets.  Also, see what ChpBstrd says above.
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 02:34:52 PM

Why does time value matter in this at all?

Its weird, my PUT (UVXY) PROSHARES TR II JAN 18 19 $17 shares are now -%3 even though they are ITM, as the last sale price was 10.6, when I paid 10.77.  I'm wondering how this happened and if I messed up the buy by bidding to close to the ask.

When you are out of the money, the entire premium is time value.  If you do like I do and target to sell at the money, your entire cost and profit are determined by time value.  If you buy or hold into the money, intrinsic value starts to become part of the equation and that can get a little messy mathematically.

In the case of your trade, time value can be a higher or lower percentage of the strike at any time based on the current volatility.  This can result in some peculiar short term price behavior.  I've been known to sell into sharp spikes in volatility because even though the underlying was moving against me, premiums were inflating.  There are a lot of moving parts here and the only piece that is nearly certain is the long term decay of the underlying due to contango in the futures markets.  Also, see what ChpBstrd says above.

Ah ok.  That might explain some of the weirdness I am seeing on my 17 strike position.

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike. 
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 06, 2017, 02:52:49 PM

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 02:58:58 PM

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)

Hmm I used the formula I found here

https://www.google.com/amp/s/m.wikihow.com/Calculate-Annualized-Portfolio-Return%3famp=1

Section 3 “annualized equivalent”.  I probably entered the formula incorrectly into my spreadsheet.  Still doesn’t suck.  But it was only 1 contract so the actual return was <$100.


Sent from my iPhone using Tapatalk
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 06, 2017, 03:07:00 PM

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)

Hmm I used the formula I found here

https://www.google.com/amp/s/m.wikihow.com/Calculate-Annualized-Portfolio-Return%3famp=1


Section 3 “annualized equivalent”.  I probably entered the formula incorrectly into my spreadsheet.  Still doesn’t suck.  But it was only 1 contract so the actual return was <$100.


Sent from my iPhone using Tapatalk

I only lightly skimmed the article, but at first blush it appeared to be factoring a compounded rate of return, which I'm assuming wasn't what you were trying to do.  My formula, above, is just a simple annualized return, without factoring in any compounding.

Since your position sizes, holding periods, and actual returns, over time, can vary wildly, I think compounding a rate of return over a year won't yield very meaningful results.

Stated differently, if you made $100 investment every 35 days, withdrawing a profit of $8.33 every time you did it,
you would be able to do that just over (by a fraction) 10 times per year.  At the end of the year, you would have $186.87 (give or take) by adding your principle to all the profits you withdrew every period.

But that assumes a fixed investment, a fixed period, and a fixed rate of return.  You could compound that by removing the fixed investment assumption, but you'd still be assuming a fixed period and a fixed rate of return, which I don't think would tell you anything meaningful about what that one single trade returned on an annualized basis.

There probably isn't really a wrong answer, compounded vs simple.  I just think the simple method makes it easier to compare two trades having different sizes, different holding periods, and different returns.  Bottom line is that the simple method is, well, simple.  Easier to do, and easier to get my head around.  ;)
Title: Re: Fun with VIX options
Post by: hgjjgkj on November 06, 2017, 03:27:14 PM
 I bought my 15 strike Put at 9.85 when it was OTM. Now it is ITM and still not close to 9.85 (I think it is around 9.60 tops) not sure what I did wrong, but wondering if anyone has any feedback. Almost every contract was up at least a % today save for mine :(
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 04:04:57 PM

So I successfully unloaded my 19 strike position.  I bought at 11.81 and sold at 12.85.  According to a spreadsheet I put together thats an 8.33% return.  The time between sell and buy was 35 days (thanks datedif function).  If I implemented annualized return correctly, I get 141%.  As soon as I get rid of my 17% strike position Ill open a new position 30% OTM and then sell at the strike.

(365/35)*8.33%=86.87%

If you want to be real nit-picky, replace 365 with 365.2422.

That still doesn't suck!  Congrats.  ;)

Hmm I used the formula I found here

https://www.google.com/amp/s/m.wikihow.com/Calculate-Annualized-Portfolio-Return%3famp=1


Section 3 “annualized equivalent”.  I probably entered the formula incorrectly into my spreadsheet.  Still doesn’t suck.  But it was only 1 contract so the actual return was <$100.


Sent from my iPhone using Tapatalk

I only lightly skimmed the article, but at first blush it appeared to be factoring a compounded rate of return, which I'm assuming wasn't what you were trying to do.  My formula, above, is just a simple annualized return, without factoring in any compounding.

Since your position sizes, holding periods, and actual returns, over time, can vary wildly, I think compounding a rate of return over a year won't yield very meaningful results.

Stated differently, if you made $100 investment every 35 days, withdrawing a profit of $8.33 every time you did it,
you would be able to do that just over (by a fraction) 10 times per year.  At the end of the year, you would have $186.87 (give or take) by adding your principle to all the profits you withdrew every period.

But that assumes a fixed investment, a fixed period, and a fixed rate of return.  You could compound that by removing the fixed investment assumption, but you'd still be assuming a fixed period and a fixed rate of return, which I don't think would tell you anything meaningful about what that one single trade returned on an annualized basis.

There probably isn't really a wrong answer, compounded vs simple.  I just think the simple method makes it easier to compare two trades having different sizes, different holding periods, and different returns.  Bottom line is that the simple method is, well, simple.  Easier to do, and easier to get my head around.  ;)


I agree that annualized number is mostly fluff for the reasons you mentioned.  The only number that matters is the amount you made compared against the amount you invested.   Still, I'm perturbed that I can't get that formula to spit out the right value.  You have to search the page for the correct calculation, search for "annualized equivalent".
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 04:06:18 PM
I bought my 15 strike Put at 9.85 when it was OTM. Now it is ITM and still not close to 9.85 (I think it is around 9.60 tops) not sure what I did wrong, but wondering if anyone has any feedback. Almost every contract was up at least a % today save for mine :(

Yeah I'm having the same problem with my 17 strike.  It doesn't seem to be appreciating even though the underlying is decaying.  The only thing I can think of is that perhaps the B/A spread was pretty wide and I bid too close to the ask.  Maybe you did the same. 
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 06, 2017, 04:27:32 PM

I agree that annualized number is mostly fluff for the reasons you mentioned.  The only number that matters is the amount you made compared against the amount you invested.   Still, I'm perturbed that I can't get that formula to spit out the right value.  You have to search the page for the correct calculation, search for "annualized equivalent".


I'm only guessing, but I suppose you might be missing that the 1/.50 part of the article's formula is an exponent.

If you have Excel, try this formula: =POWER(1+0.05,1/0.5)-1

Using the numbers from the example, it equals 0.1025, as it should.

Then you can replace 0.05 (the return for the period), and 0.5 (the fraction of a year the period represents) with references to other cells containing those two calculations.

Applying that formula to your 35 day holding produces a 130.35% compounded annualized return.
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 04:51:30 PM

I agree that annualized number is mostly fluff for the reasons you mentioned.  The only number that matters is the amount you made compared against the amount you invested.   Still, I'm perturbed that I can't get that formula to spit out the right value.  You have to search the page for the correct calculation, search for "annualized equivalent".


I'm only guessing, but I suppose you might be missing that the 1/.50 part of the article's formula is an exponent.

If you have Excel, try this formula: =POWER(1+0.05,1/0.5)-1

Using the numbers from the example, it equals 0.1025, as it should.

Then you can replace 0.05 (the return for the period), and 0.5 (the fraction of a year the period represents) with references to other cells containing those two calculations.

I entered mock values from the example and get the .1025 (or thereabouts, as it's not exactly half a year).  Im beginning to think that 365/n * p is not correct. 
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 06, 2017, 04:59:31 PM

I entered mock values from the example and get the .1025 (or thereabouts, as it's not exactly half a year).  Im beginning to think that 365/n * p is not correct.
You might have that backwards, though, I must admit, I'm not entirely sure what you're after with "365/n * p" in a formula about compounding.

Here's the proper formula with your actual results hard-coded:

=POWER(1+0.0833,1/(35/365))-1

Equals 1.303455093

Note: If you omit the additional parentheses I added, you'll get an incorrect result. If you replaced the bold part with a cell reference, you wouldn't need the extra parentheses.
Title: Re: Fun with VIX options
Post by: starguru on November 06, 2017, 05:32:07 PM

I entered mock values from the example and get the .1025 (or thereabouts, as it's not exactly half a year).  Im beginning to think that 365/n * p is not correct.
You might have that backwards, though, I must admit, I'm not entirely sure what you're after with "365/n * p".

Here's the same formula with your actual results hard-coded:

=POWER(1+0.0833,1/(35/365))-1

Equals 1.303455093

Note: If you omit the additional parentheses I added, you'll get an incorrect result. If you replaced the bold part with a cell reference, you wouldn't need the extra parentheses.

Your 130 is pretty close to my 140, the 10 probably comes from me not subtracting trading costs in both calculations (i.e. my 83 included trading costs but my 140 did not).  Neither of those is close to the 86 you get from (365/35)*8.33%=86.87%.

So which formula is correct, the one from the link or the 365/d*p?
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 06, 2017, 05:35:19 PM

I entered mock values from the example and get the .1025 (or thereabouts, as it's not exactly half a year).  Im beginning to think that 365/n * p is not correct.
You might have that backwards, though, I must admit, I'm not entirely sure what you're after with "365/n * p".

Here's the same formula with your actual results hard-coded:

=POWER(1+0.0833,1/(35/365))-1

Equals 1.303455093

Note: If you omit the additional parentheses I added, you'll get an incorrect result. If you replaced the bold part with a cell reference, you wouldn't need the extra parentheses.

Your 130 is pretty close to my 140, the 10 probably comes from me not subtracting trading costs in both calculations (i.e. my 83 included trading costs but my 140 did not).  Neither of those is close to the 86 you get from (365/35)*8.33%=86.87%.

So which formula is correct, the one from the link or the 365/d*p?

They are both correct.
86.87% is the annualized return.
130.35% is the compounded annualized return.

Whichever one you want to use just depends on whether you want to calculate a compounded annual return or not.

As long as you use the same method to compare all of your results, they should yield comparable performance results.  If you want to compare with someone else's results, you need to make sure they use the same method you do.  Apples to apples.  Oranges to oranges.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 06, 2017, 05:40:06 PM
I bought my 15 strike Put at 9.85 when it was OTM. Now it is ITM and still not close to 9.85 (I think it is around 9.60 tops) not sure what I did wrong, but wondering if anyone has any feedback. Almost every contract was up at least a % today save for mine :(

Did you possibly pay the "ask" instead of something between the bid/ask?  Or maybe bought on a day when volatility was spiking sharply?  Or both?  This is unfortunate.  I'd consider putting in a good till canceled sell order at breakeven and trying again a little wiser next time.
Title: Re: Fun with VIX options
Post by: alexpkeaton on November 06, 2017, 07:30:44 PM
Can I just reiterate that you could pursue this exact same strategy by simply buying SVXY and let them take care of rolling options daily? I own 200 in my Roth IRA and it's up over 100% YTD. I'm now writing covered calls on half of it to reduce my exposure.
Title: Re: Fun with VIX options
Post by: ChpBstrd on November 07, 2017, 07:48:38 AM
Can I just reiterate that you could pursue this exact same strategy by simply buying SVXY and let them take care of rolling options daily? I own 200 in my Roth IRA and it's up over 100% YTD. I'm now writing covered calls on half of it to reduce my exposure.

Or buy calls / synthetic longs on SVXY if you really want to roll the dice!
Title: Re: Fun with VIX options
Post by: starguru on November 07, 2017, 08:27:16 AM
Can I just reiterate that you could pursue this exact same strategy by simply buying SVXY and let them take care of rolling options daily? I own 200 in my Roth IRA and it's up over 100% YTD. I'm now writing covered calls on half of it to reduce my exposure.

Is it the same?  For one thing there is no leverage on SVXY (from what I see).  The PUTs on UVXY seems to rely mostly on a contango effect to drive a continuous reduction in price, does SVXY have the same effect?  I'm new to this so could be (probably am) incorrect, but it seems like SVXY is designed to go the opposite direction of the VIX.  If VIX goes down SVXY goes up by the same magnitude. 
Title: Re: Fun with VIX options
Post by: hgjjgkj on November 07, 2017, 09:36:19 AM
I bought my 15 strike Put at 9.85 when it was OTM. Now it is ITM and still not close to 9.85 (I think it is around 9.60 tops) not sure what I did wrong, but wondering if anyone has any feedback. Almost every contract was up at least a % today save for mine :(

Did you possibly pay the "ask" instead of something between the bid/ask?  Or maybe bought on a day when volatility was spiking sharply?  Or both?  This is unfortunate.  I'd consider putting in a good till canceled sell order at breakeven and trying again a little wiser next time.

My Order was not filling at 75% of the ask so I kept ratcheting it up. I think eventually i placed a market order and this seems like it was above ask somehow.
Title: Re: Fun with VIX options
Post by: alexpkeaton on November 07, 2017, 10:18:49 AM
Is it the same?  For one thing there is no leverage on SVXY (from what I see).  The PUTs on UVXY seems to rely mostly on a contango effect to drive a continuous reduction in price, does SVXY have the same effect?  I'm new to this so could be (probably am) incorrect, but it seems like SVXY is designed to go the opposite direction of the VIX.  If VIX goes down SVXY goes up by the same magnitude.

There's no leverage, but because of contango, SVXY naturally rises over time as it rolls options forward. In contango, the forward price is higher than the spot price, so it make a profit as the time value of the underlying contracts erodes.

Of course it all goes to hell very quickly if the market crashes. If we had another 2008-level panic I'd expect SVXY to get nearly wiped out, which is why I try to keep my position reasonably small and take profits roughly every time SVXY splits. So I buy 100 SVXY, it goes up over time, it eventually splits and I have 200 SVXY, then I sell covered calls against 100 shares until I eventually get assigned.
Title: Re: Fun with VIX options
Post by: ChpBstrd on November 07, 2017, 12:28:32 PM
SVXY's 1.39% expense ratio might be a deterrent. For every $1,000 gambled, that's a $14 drag - roughly two commissions a year at a mediocre online brokerage like mine.

Then again, in exchange for that high fee, you might expect to get a smoother ride and more professional execution (e.g. better exploitation of the bid/ask) than is acheivable on a DIY basis. You also get the chance to sell strategically so as to characterize your gains/losses as short or long term. Options, on the other hand, can expire inconveniently.

The ultimate investment IMO would be some sort of 10x leveraged cross synthetic long/short between VIX itself and these high-fee products. Then one could harvest the product's relative decay due to fees and/or contango at no risk. Still thinking on that one. I'll post a note from the beach if I figure it out.
Title: Re: Fun with VIX options
Post by: jacquespluto on November 07, 2017, 01:00:44 PM
Can I just reiterate that you could pursue this exact same strategy by simply buying SVXY and let them take care of rolling options daily? I own 200 in my Roth IRA and it's up over 100% YTD. I'm now writing covered calls on half of it to reduce my exposure.

I do something similar, but primarily with XIV.  The goal is to maximize the roll yield by investing in XIV when the VIX is in contango and in some cases (very rarely) VXX when the VIX is in backwardation.  I've had a lot of success with this strategy, however, it is a very small portion of my trading since the drawdowns can be very large when they happen.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 07, 2017, 01:43:05 PM
SVXY and XIV do well most of the time but suffer miserably during volatility spikes.   Because a 50% drop requires a 100% gain to break even, long these will not do as well as short VXX/UVXY.  XIV is still a 10 bagger over 7 years so it can work well if you are content to hold through really nasty price declines.  Or perhaps use a trailing stop loss.
Title: Re: Fun with VIX options
Post by: jacquespluto on November 07, 2017, 02:00:58 PM
SVXY and XIV do well most of the time but suffer miserably during volatility spikes.   Because a 50% drop requires a 100% gain to break even, long these will not do as well as short VXX/UVXY.  XIV is still a 10 bagger over 7 years so it can work well if you are content to hold through really nasty price declines.  Or perhaps use a trailing stop loss.

I basically just look at a 9 day moving average of the VXV vs. VIX.  If VXV moving average is higher than VIX, I stay in XIV.  If VXV moving average crosses below VIX moving average, I'll close position and go long VXX. 

The key to this strategy is to find an amount you are comfortable trading and don't increase the size with profits due to the issue you pointed out.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 07, 2017, 02:08:45 PM
I also forgot to note that XIV has a prospectus provision to liquidate after an move greater than -80% in a day.  Presumably, SVXY could be liquidated too if it was in danger of having its NAV go negative.  Not an issue with the long futures on VXX/UVXY.
Title: Re: Fun with VIX options
Post by: jacquespluto on November 07, 2017, 02:16:13 PM
Yes, that's correct, although if that were to happen we would have much bigger issues on our hands.  Again this is a trade I put on with a small portion of my capital and routinely returns 80% + per year.  With that performance it's certainly not without risk.

I also forgot to note that XIV has a prospectus provision to liquidate after an move greater than -80% in a day.  Presumably, SVXY could be liquidated too if it was in danger of having its NAV go negative.  Not an issue with the long futures on VXX/UVXY.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 07, 2017, 03:29:27 PM
Yes, that's correct, although if that were to happen we would have much bigger issues on our hands.  Again this is a trade I put on with a small portion of my capital and routinely returns 80% + per year.  With that performance it's certainly not without risk.

I also forgot to note that XIV has a prospectus provision to liquidate after an move greater than -80% in a day.  Presumably, SVXY could be liquidated too if it was in danger of having its NAV go negative.  Not an issue with the long futures on VXX/UVXY.

Can't complain with an 80% annualized return!  Glad to hear you keep a conservative allocation size.
Title: Re: Fun with VIX options
Post by: starguru on November 08, 2017, 01:43:52 PM
Ok, I unloaded my 17 strike PUT for a sweet sweet profit of 3% (about $30).  The good news I can now properly enter a trade that is more OTM and sell at the strike.  I have a GTC order on the Jan2019 10 Strike.  The bid/ask spread seems to be pretty tight at 5.55/5.6, so I just bid the actual bid price.  One positive thing about going more OTM is the contracts are cheaper.  Im going after 9 contracts, with trading fees of about $10.2, which is a much better cost per contract than buying fewer contracts.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 08, 2017, 01:56:12 PM
Best of luck starguru.  Long live the UVXY short trade!
Title: Re: Fun with VIX options
Post by: starguru on November 08, 2017, 02:32:55 PM
Best of luck starguru.  Long live the UVXY short trade!

Thanx FV.  Can you remind me what you do if the B/A spread is wide?  My 17 Strike experience has taught me that it actually matters quite substantially with this trade. 
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 08, 2017, 03:44:25 PM
Best of luck starguru.  Long live the UVXY short trade!

Thanx FV.  Can you remind me what you do if the B/A spread is wide?  My 17 Strike experience has taught me that it actually matters quite substantially with this trade.

I usually creep up from the bid until the market has mostly just my shares at the revised bid then sit tight.  If you bid on 50 contracts at 9.85 and your NBBO updates to 4000 contracts at 9.85, that isn't like to fill.  When you update to something like say 10.05 and there are now 54 contracts at the price, you stand a good chance of getting filled by sitting tight.  The market will thus signal you when you are approaching a "fair" bid price vis-a-vis black-scholes theory.
Title: Re: Fun with VIX options
Post by: starguru on November 08, 2017, 04:34:19 PM
Best of luck starguru.  Long live the UVXY short trade!

Thanx FV.  Can you remind me what you do if the B/A spread is wide?  My 17 Strike experience has taught me that it actually matters quite substantially with this trade.

I usually creep up from the bid until the market has mostly just my shares at the revised bid then sit tight.  If you bid on 50 contracts at 9.85 and your NBBO updates to 4000 contracts at 9.85, that isn't like to fill.  When you update to something like say 10.05 and there are now 54 contracts at the price, you stand a good chance of getting filled by sitting tight.  The market will thus signal you when you are approaching a "fair" bid price vis-a-vis black-scholes theory.

What is NBBO?  Im not sure I see anything like that in Fidelity's trading window.

Another question that occurs to me (sorry :)) is what to do with profits from this strategy?  Im not using this to generate an income.  If I reinvest in the PUT then I stand a chance to lose everything.  But if i don't I can't take advantage of compounding returns.  I suppose I could put the income back into my FSTVX position....
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 08, 2017, 05:30:02 PM


What is NBBO?  Im not sure I see anything like that in Fidelity's trading window.

Another question that occurs to me (sorry :)) is what to do with profits from this strategy?  Im not using this to generate an income.  If I reinvest in the PUT then I stand a chance to lose everything.  But if i don't I can't take advantage of compounding returns.  I suppose I could put the income back into my FSTVX position....

I think its Next Best Bid (or) Offer.  It's been awhile.  Most brokers show the current bid/ask along with the number of contracts at those prices.

I allocate 10% of my portfolio to this strategy.  Thus, my investment plus 10% of my gains go into the next series of puts.  The rest is invested based on my allocation targets.  For me, that is 40% fixed/variable "income" investments such as bond funds and preferred funds.  The rest goes to high yield equity and miscellaneous options writing for income.  Basically, if you have a investor policy statement, you should consult it for what to do with profits.
Title: Re: Fun with VIX options
Post by: starguru on November 09, 2017, 06:19:44 AM
Interesting.  UVXY is spiking in pre market trading.  Does anyone know why?  I got extremely lucky in that my order to buy the 10 strike options didn’t fill and was limited to the day.  Buying opportunity or warning to stay out?


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Title: Re: Fun with VIX options
Post by: ChpBstrd on November 09, 2017, 08:05:02 AM
Interesting.  UVXY is spiking in pre market trading.  Does anyone know why?  I got extremely lucky in that my order to buy the 10 strike options didn’t fill and was limited to the day.  Buying opportunity or warning to stay out?


Sent from my iPhone using Tapatalk

I vote opportunity. In the past, deviations from the trendline have been corrected with a fast subsequent move downward. If this was a company, I would be talking technical analysis BS in pointing out this trend. However, with UVXY, there's something mathematical at work. E.g. when the futures spread tightens, arbitration springs it back. UVXY's trading strategy creates the decay you're betting on, and the market movement is noise in the long run.
Title: Re: Fun with VIX options
Post by: hodedofome on November 09, 2017, 12:08:56 PM
I have been outright shorting VXX for over a year now, adding to my short on spikes in volatility. I try to keep my position no larger than 10% of my trading account. Backtesting my strategy using VIX futures data to 2004 has resulted in CAGR of over 40%, however drawdowns can be horrendous.

I've been considering switching over to buying puts like Velociraptor however. Buying XIV has the risk of the fund shutting down completely and everyone losing their money if volatility spikes enough. I read one analysis that another black monday like 1987 could cause the fund to shut down. Shorting VXX during a huge spike could cause a margin call for me, even though I keep it around 10% of my account VXX would have spiked 500-600% during the financial crisis.

Buying puts at least caps the downside, if I lost 100% of the trade I could still cap my loss at 10% of my account if I so desired.
Title: Re: Fun with VIX options
Post by: jacquespluto on November 09, 2017, 01:30:06 PM
You mention that you don't trade XIV due to the 80% rule where the fund could close in a crazy black swan / world ending type of event.  If that were to happen (which many argue is nearly impossible), you would still be left with 20%.  Much better than a margin call and possibly owing more money than you originally invested by shorting VXX through the same event.

So you aren't willing to lose 80% of lets say 10% of your capital in a crazy black swan event, but your current trade could lose more than 100% and end up owing your broker.  You also then go on to say that you would be willing to lose 100% trading puts if you are using 10% of capital.  I'm a little confused.
 
I have been outright shorting VXX for over a year now, adding to my short on spikes in volatility. I try to keep my position no larger than 10% of my trading account. Backtesting my strategy using VIX futures data to 2004 has resulted in CAGR of over 40%, however drawdowns can be horrendous.

I've been considering switching over to buying puts like Velociraptor however. Buying XIV has the risk of the fund shutting down completely and everyone losing their money if volatility spikes enough. I read one analysis that another black monday like 1987 could cause the fund to shut down. Shorting VXX during a huge spike could cause a margin call for me, even though I keep it around 10% of my account VXX would have spiked 500-600% during the financial crisis.

Buying puts at least caps the downside, if I lost 100% of the trade I could still cap my loss at 10% of my account if I so desired.
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 09, 2017, 02:02:34 PM
Interesting.  UVXY is spiking in pre market trading.  Does anyone know why?  I got extremely lucky in that my order to buy the 10 strike options didn’t fill and was limited to the day.  Buying opportunity or warning to stay out?


Sent from my iPhone using Tapatalk

I vote opportunity. In the past, deviations from the trendline have been corrected with a fast subsequent move downward. If this was a company, I would be talking technical analysis BS in pointing out this trend. However, with UVXY, there's something mathematical at work. E.g. when the futures spread tightens, arbitration springs it back. UVXY's trading strategy creates the decay you're betting on, and the market movement is noise in the long run.
One thing distinguishing put buying against the UVXY from put buying against a "real" company, is that when UVXY spikes, it's because volatility spiked.  When a real company's stock goes up, you would expect volatility to be falling, making options cheaper to buy.  By definition, a rising UVXY suggests an inflated pricing of the put options because of higher volatility.  Seemingly not an ideal scenario for an option buyer.

It's not clear to me that a spike in UVXY represents such an obvious opportunity when buying puts.  Once you buy those puts, and once volatility settles down again, one would expect some deflation in the value of those puts working counter to the increase of value as it comes closer to the money.  Kind of like a tug of war between competing forces in valuing the option. It's not obvious to me which force would prevail, in the short term. It is indeed an interesting question.
Title: Re: Fun with VIX options
Post by: hodedofome on November 09, 2017, 02:04:57 PM
You mention that you don't trade XIV due to the 80% rule where the fund could close in a crazy black swan / world ending type of event.  If that were to happen (which many argue is nearly impossible), you would still be left with 20%.  Much better than a margin call and possibly owing more money than you originally invested by shorting VXX through the same event.

So you aren't willing to lose 80% of lets say 10% of your capital in a crazy black swan event, but your current trade could lose more than 100% and end up owing your broker.  You also then go on to say that you would be willing to lose 100% trading puts if you are using 10% of capital.  I'm a little confused.


Doesn't have to be a world ending event. I said 1987 has been estimated to have wiped out XIV.

Margin call would suck but all it would mean is that I need to come up with the money elsewhere to keep my position.

The worst I could lose buying puts is 100% of my position, if my position is 10% of my account then that means I lose 10% of my capital.
Title: Re: Fun with VIX options
Post by: starguru on November 09, 2017, 02:20:40 PM
You mention that you don't trade XIV due to the 80% rule where the fund could close in a crazy black swan / world ending type of event.  If that were to happen (which many argue is nearly impossible), you would still be left with 20%.  Much better than a margin call and possibly owing more money than you originally invested by shorting VXX through the same event.

So you aren't willing to lose 80% of lets say 10% of your capital in a crazy black swan event, but your current trade could lose more than 100% and end up owing your broker.  You also then go on to say that you would be willing to lose 100% trading puts if you are using 10% of capital.  I'm a little confused.


Doesn't have to be a world ending event. I said 1987 has been estimated to have wiped out XIV.

Margin call would suck but all it would mean is that I need to come up with the money elsewhere to keep my position.

The worst I could lose buying puts is 100% of my position, if my position is 10% of my account then that means I lose 10% of my capital.

Right, but if XIV is only 10% of your portfolio then the most your risk is 10% even if XIV gets wiped out.
Title: Re: Fun with VIX options
Post by: starguru on November 09, 2017, 02:25:08 PM
Interesting.  UVXY is spiking in pre market trading.  Does anyone know why?  I got extremely lucky in that my order to buy the 10 strike options didn’t fill and was limited to the day.  Buying opportunity or warning to stay out?


Sent from my iPhone using Tapatalk

I vote opportunity. In the past, deviations from the trendline have been corrected with a fast subsequent move downward. If this was a company, I would be talking technical analysis BS in pointing out this trend. However, with UVXY, there's something mathematical at work. E.g. when the futures spread tightens, arbitration springs it back. UVXY's trading strategy creates the decay you're betting on, and the market movement is noise in the long run.
One thing distinguishing put buying against the UVXY from put buying against a "real" company, is that when UVXY spikes, it's because volatility spiked.  By definition, this suggests an inflated pricing of the put options because of higher volatility.

It's not clear to me that a spike in UVXY represents such an obvious opportunity when buying puts.  Once you buy those puts, and once volatility settles down again, one would expect some deflation in the value of those puts working counter to the increase of value as it comes closer to the money.  Kind of like a tug of war in valuing the option. It's not obvious which force would prevail, in the short term. It is indeed an interesting question.

Either way I bought my $10 strike contracts at my ask at one point when UVXY spiked during the day.  It appears to have settled down in the afternoon.  Wonder if the carnage will continue tomorrow.
Title: Re: Fun with VIX options
Post by: jacquespluto on November 09, 2017, 03:19:35 PM
Yes, Starguru, that was my point.  I just didn't understand the post since either way you could lose 100% of the 10% you have allocated to this strategy -  so doesn't make sense singling out XIV as a bad option. 

In the case of shorting VXX you could lose more than 100%, so IMO that is the worst of the 3 strategies.  I've seen people blow up their accounts shorting stocks and actually end up owing more money.  Brokers don't care, they will just liquidate everything in your account with a bad margin call and it will be at pennies on the dollar (in case of a black swan) unless you have a really powerful hedge in place.  Regardless, there is no floor with shorting something like VXX in the case of a black swan.

With puts on UVXY or long XIV you can only lose 100%, no more.  So you just need to be comfortable with the % allocated to the strategy.  With XIV, you may even salvage 20% of your investment according to the prospectus. 

"...you will receive a cash payment in an amount (the "Accelerated Redemption Amount") equal to the Closing Indicative Value on the Accelerated Valuation Date."

You mention that you don't trade XIV due to the 80% rule where the fund could close in a crazy black swan / world ending type of event.  If that were to happen (which many argue is nearly impossible), you would still be left with 20%.  Much better than a margin call and possibly owing more money than you originally invested by shorting VXX through the same event.

So you aren't willing to lose 80% of lets say 10% of your capital in a crazy black swan event, but your current trade could lose more than 100% and end up owing your broker.  You also then go on to say that you would be willing to lose 100% trading puts if you are using 10% of capital.  I'm a little confused.


Doesn't have to be a world ending event. I said 1987 has been estimated to have wiped out XIV.

Margin call would suck but all it would mean is that I need to come up with the money elsewhere to keep my position.

The worst I could lose buying puts is 100% of my position, if my position is 10% of my account then that means I lose 10% of my capital.

Right, but if XIV is only 10% of your portfolio then the most your risk is 10% even if XIV gets wiped out.
Title: Re: Fun with VIX options
Post by: ChpBstrd on November 09, 2017, 06:35:03 PM
Interesting.  UVXY is spiking in pre market trading.  Does anyone know why?  I got extremely lucky in that my order to buy the 10 strike options didn’t fill and was limited to the day.  Buying opportunity or warning to stay out?


Sent from my iPhone using Tapatalk

I vote opportunity. In the past, deviations from the trendline have been corrected with a fast subsequent move downward. If this was a company, I would be talking technical analysis BS in pointing out this trend. However, with UVXY, there's something mathematical at work. E.g. when the futures spread tightens, arbitration springs it back. UVXY's trading strategy creates the decay you're betting on, and the market movement is noise in the long run.
One thing distinguishing put buying against the UVXY from put buying against a "real" company, is that when UVXY spikes, it's because volatility spiked.  When a real company's stock goes up, you would expect volatility to be falling, making options cheaper to buy.  By definition, a rising UVXY suggests an inflated pricing of the put options because of higher volatility.  Seemingly not an ideal scenario for an option buyer.

It's not clear to me that a spike in UVXY represents such an obvious opportunity when buying puts.  Once you buy those puts, and once volatility settles down again, one would expect some deflation in the value of those puts working counter to the increase of value as it comes closer to the money.  Kind of like a tug of war between competing forces in valuing the option. It's not obvious to me which force would prevail, in the short term. It is indeed an interesting question.
I've been trying to figure this paradox out for a while, buying a few strikes at a couple timeframes. Rising market volatility causes the underlying UVXY to rise, which is a factor causing puts to decline. However, increasing volatility of UVXY is a factor causing both puts and calls to increase in value.

My results are confounding. On a daily basis, some of my puts will be up and some will be down, as quoted based on bid prices. There are two reasons for this:

1) Bid-ask spreads expand and contract unpredictably. One day it might be a 4 cent spread and the next day a 15 cent spread. If your quote is the bid price, your quote reflects a lot of this noise.

2) For a shorter-duration put, the movement of the underlying will have a bigger effect. For a longer-duration put, the change in UVXY's volatility will have a bigger effect. The longer-duration puts offer a "smoother ride" because their decline in response to a UVXY spike is offset to a greater degree by an increase in UVXY's implied volatility. For the same reason, buying UVXY puts right after a big volatility move might disappoint, because the decline in implied volatility when things return to normal will offset much of the gains from UVXY's decline. Thus, I view volatility events as a safer time to buy puts, not a home run opportunity.
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 09, 2017, 07:06:42 PM
I've been trying to figure this paradox out for a while, buying a few strikes at a couple timeframes. Rising market volatility causes the underlying UVXY to rise, which is a factor causing puts to decline. However, increasing volatility of UVXY is a factor causing both puts and calls to increase in value.

My results are confounding. On a daily basis, some of my puts will be up and some will be down, as quoted based on bid prices. There are two reasons for this:

1) Bid-ask spreads expand and contract unpredictably. One day it might be a 4 cent spread and the next day a 15 cent spread. If your quote is the bid price, your quote reflects a lot of this noise.

2) For a shorter-duration put, the movement of the underlying will have a bigger effect. For a longer-duration put, the change in UVXY's volatility will have a bigger effect. The longer-duration puts offer a "smoother ride" because their decline in response to a UVXY spike is offset to a greater degree by an increase in UVXY's implied volatility. For the same reason, buying UVXY puts right after a big volatility move might disappoint, because the decline in implied volatility when things return to normal will offset much of the gains from UVXY's decline. Thus, I view volatility events as a safer time to buy puts, not a home run opportunity.
I'm not in this trade yet.  I'm waiting for the 2020's to come out.  But I've been watching it intently for the last few days.  The ask for the near ATM 15 strike for the 2019's yesterday bounced between 9.50 and 9.55 all day long.  Today, nearly a dollar higher on UVXY's ticker today, the ask was pretty much stuck at 9.55, with only a few brief departures back to 9.50.  The swings in the bid, on both days, was much larger, about 35 cents or so.

With a ~$1 move in the underlying, I was understandably a bit surprised to see so little movement in the bid/ask from one day to the next.  Sure, 2 days is (admittedly) statistically a tiny sample set, but it seemed as if the VIX was being used in the implied volatility part of the pricing mechanism, rather than the implied volatility of UVXY itself.  ??

Even more anecdotally, yesterday, after a quick sharp drop in UVXY, the 9.40 bids for the same put literally evaporated into thin air, instantly, with no trades, only to be replaced by a 9.20 bid; which is exactly the opposite of what I would expect if the VIX were being used to price the options. Confounding indeed.
Title: Re: Fun with VIX options
Post by: ChpBstrd on November 10, 2017, 08:16:16 AM
I've been trying to figure this paradox out for a while, buying a few strikes at a couple timeframes. Rising market volatility causes the underlying UVXY to rise, which is a factor causing puts to decline. However, increasing volatility of UVXY is a factor causing both puts and calls to increase in value.

My results are confounding. On a daily basis, some of my puts will be up and some will be down, as quoted based on bid prices. There are two reasons for this:

1) Bid-ask spreads expand and contract unpredictably. One day it might be a 4 cent spread and the next day a 15 cent spread. If your quote is the bid price, your quote reflects a lot of this noise.

2) For a shorter-duration put, the movement of the underlying will have a bigger effect. For a longer-duration put, the change in UVXY's volatility will have a bigger effect. The longer-duration puts offer a "smoother ride" because their decline in response to a UVXY spike is offset to a greater degree by an increase in UVXY's implied volatility. For the same reason, buying UVXY puts right after a big volatility move might disappoint, because the decline in implied volatility when things return to normal will offset much of the gains from UVXY's decline. Thus, I view volatility events as a safer time to buy puts, not a home run opportunity.
I'm not in this trade yet.  I'm waiting for the 2020's to come out.  But I've been watching it intently for the last few days.  The ask for the near ATM 15 strike for the 2019's yesterday bounced between 9.50 and 9.55 all day long.  Today, nearly a dollar higher on UVXY's ticker today, the ask was pretty much stuck at 9.55, with only a few brief departures back to 9.50.  The swings in the bid, on both days, was much larger, about 35 cents or so.

With a ~$1 move in the underlying, I was understandably a bit surprised to see so little movement in the bid/ask from one day to the next.  Sure, 2 days is (admittedly) statistically a tiny sample set, but it seemed as if the VIX was being used in the implied volatility part of the pricing mechanism, rather than the implied volatility of UVXY itself.  ??

Even more anecdotally, yesterday, after a quick sharp drop in UVXY, the 9.40 bids for the same put literally evaporated into thin air, instantly, with no trades, only to be replaced by a 9.20 bid; which is exactly the opposite of what I would expect if the VIX were being used to price the options. Confounding indeed.

I think most of us are unused to owning long options positions with 1+ years duration. People usually think in terms of options with a couple weeks or maybe a month left, and these can be very volatile indeed with double-digit % swings in response to single-digit % changes in the underlying. The delta on long-term options is much lower though, because volatility plays a bigger role. E.g. the delta on some of mine is 13 cents for every dollar move in UVXY. Instead of a wild ride, we get the daily movement of IBM stock or something, with only an elastic connection to the underlying. Velociraptor's attitude - to make this trade with long-term options, roll as they approach ATM, and hold for the long run - is catching on with me. It helps that he's making a living doing it. :)
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 10, 2017, 12:37:18 PM
I'm not in this trade yet.  I'm waiting for the 2020's to come out.


Note that when the 2020's come out, the bid/ask will be VERY wide for a few days to a few weeks.  I don't know why this is but each year, the initial pricing is completely nonsensical with piss poor liquidity.
Title: Re: Fun with VIX options
Post by: ILikeDividends on November 10, 2017, 01:14:50 PM
I'm not in this trade yet.  I'm waiting for the 2020's to come out.


Note that when the 2020's come out, the bid/ask will be VERY wide for a few days to a few weeks.  I don't know why this is but each year, the initial pricing is completely nonsensical with piss poor liquidity.
Thanks for the head's up.  I won't rush it.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 10, 2017, 01:56:21 PM
FYI, I found the data on when the LEAPS are issued.  Seems they are issued at three separate dates, depending on which options cycle the security is on.  (UVXY is on cycle 3).

"Cycle 1: Monday, September 11th, 2017: January 2020 LEAPS® listed

Cycle 2: Monday, October 16th, 2017: January 2020 LEAPS® listed

Cycle 3: Monday, November 13th, 2017: January 2020 LEAPS® listed"

So expect to see the new series issued on Monday with wacky pricing for a few days.  Should be able to get a "good" fill by the 20th.
Title: Re: Fun with VIX options
Post by: MustachioedPistachio on November 10, 2017, 04:36:20 PM
I'd like to chime in also thanking everyone for sharing their experiences! Once my IB account is funded, I'll post as well.

I whipped up this spreadsheet (https://docs.google.com/spreadsheets/d/1p39D9QhXDXIuUa4c2K20T3E0KdOKuYqRc82uPzzsH2g/edit?usp=sharing) to help wrap my head around appropriate strike prices relative to decay of the underlying. Maybe it'll help some of you too!
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 10, 2017, 04:46:40 PM
I'd like to chime in also thanking everyone for sharing their experiences! Once my IB account is funded, I'll post as well.

I whipped up this spreadsheet (https://docs.google.com/spreadsheets/d/1p39D9QhXDXIuUa4c2K20T3E0KdOKuYqRc82uPzzsH2g/edit?usp=sharing) to help wrap my head around appropriate strike prices relative to decay of the underlying. Maybe it'll help some of you too!

Nifty spreadsheet!

Can you make it clear with text which expiry the bottom table is referring to?  I assume that is the longest dated available LEAP expiry (Jan).  Or I have it completely wrong and the table is expiry agnostic and is driven by time versus current price of underlying?

Thanks.
Title: Re: Fun with VIX options
Post by: MustachioedPistachio on November 10, 2017, 11:10:37 PM
Thanks! I put a comment in the spreadsheet to reflect that...
the table is expiry agnostic and is driven by time versus current price of underlying.
After a volatility spike, how long does it typically take for premiums to deflate to "normal"? Do they tend to gradually stabilize or decelerate a bit too quickly and then bounce back to normal? Plump one day then business as usual the next? YMMV?

Thanks again!
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 11, 2017, 08:06:13 AM
Thanks! I put a comment in the spreadsheet to reflect that...
the table is expiry agnostic and is driven by time versus current price of underlying.
After a volatility spike, how long does it typically take for premiums to deflate to "normal"? Do they tend to gradually stabilize or decelerate a bit too quickly and then bounce back to normal? Plump one day then business as usual the next? YMMV?

Thanks again!

It depends on how big the spike is.  A 7-8% downward move in the S&P usually returns to the starting point in about a month.  Or the market for ^VIX futures can do something completely unexpected and "irrational".  Remember, the futures prices reflects not just today's market action but the expectations of futures buyers and sellers for the 14 to 40 day future.  If there is rampant euphoria or pessimism, the futures can move counter to the broad market.  But over long periods of time, the futures ultimately track the inverse of the S&P.
Title: Re: Fun with VIX options
Post by: hgjjgkj on November 11, 2017, 03:40:41 PM
Thanks! I put a comment in the spreadsheet to reflect that...
the table is expiry agnostic and is driven by time versus current price of underlying.
After a volatility spike, how long does it typically take for premiums to deflate to "normal"? Do they tend to gradually stabilize or decelerate a bit too quickly and then bounce back to normal? Plump one day then business as usual the next? YMMV?

Thanks again!

It depends on how big the spike is.  A 7-8% downward move in the S&P usually returns to the starting point in about a month.  Or the market for ^VIX futures can do something completely unexpected and "irrational".  Remember, the futures prices reflects not just today's market action but the expectations of futures buyers and sellers for the 14 to 40 day future.  If there is rampant euphoria or pessimism, the futures can move counter to the broad market.  But over long periods of time, the futures ultimately track the inverse of the S&P.

Is there an Impl Vol value or relationship you use to guide when to buy? For example the 2019 $15 strike as imp vol of 1.19 right now. Not sure where to get historical data on this but that seems high. http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00015000-uvxy-put  If you buy after a big move, I think you could get vol crushed. I tried to guard against this but maybe it happened on my 9.85 puts
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 11, 2017, 05:13:39 PM

Is there an Impl Vol value or relationship you use to guide when to buy? For example the 2019 $15 strike as imp vol of 1.19 right now. Not sure where to get historical data on this but that seems high. http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00015000-uvxy-put  If you buy after a big move, I think you could get vol crushed. I tried to guard against this but maybe it happened on my 9.85 puts

Once you are established and selling at a predetermined price, you will always be selling/rolling on a quiet day in the market.  Making moves at low vol is self reinforcing.
Title: Re: Fun with VIX options
Post by: hgjjgkj on November 11, 2017, 07:27:17 PM

Is there an Impl Vol value or relationship you use to guide when to buy? For example the 2019 $15 strike as imp vol of 1.19 right now. Not sure where to get historical data on this but that seems high. http://www.nasdaq.com/symbol/uvxy/option-chain/190118P00015000-uvxy-put  If you buy after a big move, I think you could get vol crushed. I tried to guard against this but maybe it happened on my 9.85 puts

Once you are established and selling at a predetermined price, you will always be selling/rolling on a quiet day in the market.  Making moves at low vol is self reinforcing.

Sorry this may be a dumb question but if you are rolling during low vol aren't you selling on days where you lost money?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 12, 2017, 05:45:55 PM


Sorry this may be a dumb question but if you are rolling during low vol aren't you selling on days where you lost money?

Low vol days tend to be associated with up days in the market.  E.g. VIX and UVXY fall and UVXY puts rise.  It is somewhat counter-intuitive but you get used to it.
Title: Re: Fun with VIX options
Post by: sieben on November 14, 2017, 06:38:25 PM
Hey Financial.Velociraptor,

I've been spending some time on your blog and watching your posts here on MMM.
I'm very curious about your investing approach, but for some reason my brain seems to have a hard time wrapping around the terminology and everything you are talking about.
I'm not going to even try to get involved until I have a better understanding. I was wondering if you had any books/online resources you could point me too that might help me figure this out.

Thanks so much :)
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 14, 2017, 09:07:16 PM
Hey Financial.Velociraptor,

I've been spending some time on your blog and watching your posts here on MMM.
I'm very curious about your investing approach, but for some reason my brain seems to have a hard time wrapping around the terminology and everything you are talking about.
I'm not going to even try to get involved until I have a better understanding. I was wondering if you had any books/online resources you could point me too that might help me figure this out.

Thanks so much :)

I assume you mean on the options side?  PM me with an email address and I'll send you some resources.
Title: Re: Fun with VIX options
Post by: talltexan on November 22, 2017, 09:41:03 AM
So I discovered that my Capital One Investing options approval allows this trade. Will keep the group updated as I join in your riches!
Title: Re: Fun with VIX options
Post by: jacquespluto on November 22, 2017, 10:41:38 AM
I've been long XIV for a while now and made another large purchase last week to add to my core shares.  In just a week those new shares are already up close to 10%. 

Velociraptor, I'm guessing you have had similar success over the past week as the VIX has made a big move down and continues to be in Contango.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 22, 2017, 11:43:04 AM
I've been long XIV for a while now and made another large purchase last week to add to my core shares.  In just a week those new shares are already up close to 10%. 

Velociraptor, I'm guessing you have had similar success over the past week as the VIX has made a big move down and continues to be in Contango.

I can't complain.  My most recent puts are up 5% or about 75% annualized.  I have to exit the trade in my tIRA soon.  IB is no longer going to allow partnerships in tax advantaged accounts as of the 30th.
Title: Re: Fun with VIX options
Post by: starguru on November 22, 2017, 12:00:27 PM
I’m confused on how the options prices move on this security.  I bought my current PUTS with a strike of 10 when the security was at about 15.5.  I’m sure I was right in the middle of a tight bid ask spread.  The security spiked and my PUTS lost value accordingly.  But last night when I checked my account,  when the security was at about 13.5,  my contracts were still worth less than what I paid for them.  That doesn’t make any sense to me.


Sent from my iPhone using Tapatalk
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 22, 2017, 03:55:01 PM
I’m confused on how the options prices move on this security.  I bought my current PUTS with a strike of 10 when the security was at about 15.5.  I’m sure I was right in the middle of a tight bid ask spread.  The security spiked and my PUTS lost value accordingly.  But last night when I checked my account,  when the security was at about 13.5,  my contracts were still worth less than what I paid for them.  That doesn’t make any sense to me.


Sent from my iPhone using Tapatalk

I paid 5.55 for 10 strikes on 1NOV2017.  Underlying was around 15 at the time.  Is this similar to what you paid?  I'm up 15 cents as of today's close.  That's 2.70% or 44.84% annualized.
Title: Re: Fun with VIX options
Post by: starguru on November 23, 2017, 12:14:48 PM
I’m confused on how the options prices move on this security.  I bought my current PUTS with a strike of 10 when the security was at about 15.5.  I’m sure I was right in the middle of a tight bid ask spread.  The security spiked and my PUTS lost value accordingly.  But last night when I checked my account,  when the security was at about 13.5,  my contracts were still worth less than what I paid for them.  That doesn’t make any sense to me.


Sent from my iPhone using Tapatalk

I paid 5.55 for 10 strikes on 1NOV2017.  Underlying was around 15 at the time.  Is this similar to what you paid?  I'm up 15 cents as of today's close.  That's 2.70% or 44.84% annualized.

I paid 5.51 on Nov 9.  I'm seeing a 3.4% gain since then.  What is weird is that when the underlying price spiked, and then fell back to the 15 it was when I bought, my options were worth less than what I paid.  Furthermore, the underlying fell yesterday, but my options lost value (about 1%) according to Fidelity.

Title: Re: Fun with VIX options
Post by: MustachioedPistachio on November 23, 2017, 12:50:36 PM
Got my IB account up and funded.

Bought two 18Jan2019 $9 strike at $4.85 on 20Nov2017. Up 5 cents based on market price (+1.0%) as of 22Nov2017.
Bought thirty-five 17Jan2020 $1 strike at $0.57 on 21Nov2017. Up 2 cents based on market (+3.5%) as of 22Nov2017.

I'm curious how the $1 2020s will perform. With TVM being the primary value driver, and $1 being the lowest strike until the next reverse split, I'd imagine rolling them wouldn't be beneficial until after the split. And depending on when that is, it may no longer make sense risk-wise to roll into a super low strike, as the hold period will continue to shorten.

Thoughts?

Furthermore, the underlying fell yesterday, but my options lost value (about 1%) according to Fidelity.
This could be due to which price Fidelity bases your market value on: bid or market (last price).
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 23, 2017, 05:51:34 PM
Got my IB account up and funded.

Bought two 18Jan2019 $9 strike at $4.85 on 20Nov2017. Up 5 cents based on market price (+1.0%) as of 22Nov2017.
Bought thirty-five 17Jan2020 $1 strike at $0.57 on 21Nov2017. Up 2 cents based on market (+3.5%) as of 22Nov2017.

I'm curious how the $1 2020s will perform. With TVM being the primary value driver, and $1 being the lowest strike until the next reverse split, I'd imagine rolling them wouldn't be beneficial until after the split. And depending on when that is, it may no longer make sense risk-wise to roll into a super low strike, as the hold period will continue to shorten.

Thoughts?

Furthermore, the underlying fell yesterday, but my options lost value (about 1%) according to Fidelity.
This could be due to which price Fidelity bases your market value on: bid or market (last price).

Shorter expiries with lower TV will outperform longer dated expiries.  This comes at the cost of increased risk.  I like to stick with the longest dated available on the date of purchase.  There are ways to make a (lot) more money with this trade than with buying the long dated puts.  They all entail greater risk though.  For my money, capital preservation is an essential motivator.  YMMV if you are still in the accumulation phase and still working.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on November 23, 2017, 05:56:04 PM

I paid 5.51 on Nov 9.  I'm seeing a 3.4% gain since then.  What is weird is that when the underlying price spiked, and then fell back to the 15 it was when I bought, my options were worth less than what I paid.  Furthermore, the underlying fell yesterday, but my options lost value (about 1%) according to Fidelity.

There are a lot of theories (ok one [black-scholes]) that define how options prices perform.  As you are seeing, it can be quite complex.  Beneath the level of the underlying is the level of the actual ^VIX.  Higher ^VIX supports higher premiums and higher time value.  And the underlying is based on futures thereof which means there is an expectations component to the pricing.  Just because the underlying is moving your way today does not mean the market expectation is for it continue to do so 40 days from now. 

There have been times when UVXY has spiked and I have sold into what should be a negative event because my premium soared anyway.  The key is to be sufficiently out of the money and have sufficient time to expiry to take advantage of contango.  The ride in between is guaranteed to be bumpy so is not for the feint of heart or for the rent money.   Strongly recommend a "sober" allocation size to this trade.
Title: Re: Fun with VIX options
Post by: Finances_With_Purpose on November 23, 2017, 08:46:07 PM
Wow, profoundly interesting.  Thank you, FV.  I avoid stock-picking, market-timing, and etc., though I keep a small "play" fund around just for things such as this, if/when I decide to try it.  Made a good bit on currency trades at one point (mainly on volatility), but would never do so as a core strategy.  I'm very fascinated by this discussion, though, and see what you're getting at with the trade.  One wonders too if it isn't possible for other such decaying ETFs, too - and if so, why is nobody taking advantage of it? 

One sure wonders who takes the other side of these bets.  Hedge funds/automated trades?  It's interesting. 

I'm posting to follow and intend to look hard at this trade.  I'm confident I have the psychological constitution to make the bets, but I like to understand it extremely well before I put hard money into something. 

Title: Re: Fun with VIX options
Post by: ChpBstrd on November 24, 2017, 08:19:42 PM
I’m confused on how the options prices move on this security.  I bought my current PUTS with a strike of 10 when the security was at about 15.5.  I’m sure I was right in the middle of a tight bid ask spread.  The security spiked and my PUTS lost value accordingly.  But last night when I checked my account,  when the security was at about 13.5,  my contracts were still worth less than what I paid for them.  That doesn’t make any sense to me.

See my earlier post about how volatility sets the price to a greater extent than even delta for longer-term LEAP contracts. Also, your broker will quote your long put position at the bid price, not what you could actually get placing incremental limit orders, dropping a penny at a time and letting them sit for several minutes each iteration. In the case of these puts, your actual value might be 5-10% higher.

Quote
I keep a small "play" fund around just for things such as this, if/when I decide to try it.

Just open a "paper trading" account. Every broker offers one. You can try different strike prices, different maturities, and different strategies all at the same time with no worries of losing a dime. Get to know this trade before putting (hehe..see what I did there?) actual cash on the line.
Title: Re: Fun with VIX options
Post by: starguru on December 15, 2017, 01:15:42 PM
Approaching time to unload my 19Jan10 positions.  Right now showing about an 8% gain, while the underlying depreciated about 30%.  Ill probably put in a GTC ask of 6.15.
Title: Re: Fun with VIX options
Post by: talltexan on December 15, 2017, 01:39:26 PM
Today's a nice day; I have march and june contracts right now.
Title: Re: Fun with VIX options
Post by: hgjjgkj on December 16, 2017, 11:04:38 AM
I got in at a jan 19 15 strike at 9.85. Sold yesterday at 10.17 for a 3% return over the period. At about 2 months in the market that's an 18% annualized return.
Title: Re: Fun with VIX options
Post by: hgjjgkj on December 16, 2017, 12:15:38 PM
Once you sell out of a trade how do you think about reentry? I had a strike that was pretty hard to sell out of. I think it was due to bidding to close to the bid ask. But now with the market at an ATH on Friday, it doesnt seem wise to reenter the trade immediately. Is it better to wait for a day where vix increases due to a slight decline in SPY? Was also thinking about buying XIV on the dip too
Title: Re: Fun with VIX options
Post by: talltexan on December 18, 2017, 07:33:34 AM
I'm trying to work with always having two positions with different months' expiry. That way, if there's a spike in the price of uvxy, only one will be completely wiped out. Also, when I sell one, I still have the other one in the market while I'm trying to re-enter.

I bought one of them at "market", and my co-worker (who also trades options) wanted to kick my ass. (I deserved it)
Title: Re: Fun with VIX options
Post by: starguru on December 18, 2017, 08:19:18 AM
Once you sell out of a trade how do you think about reentry? I had a strike that was pretty hard to sell out of. I think it was due to bidding to close to the bid ask. But now with the market at an ATH on Friday, it doesnt seem wise to reenter the trade immediately. Is it better to wait for a day where vix increases due to a slight decline in SPY? Was also thinking about buying XIV on the dip too

I think there is patience involved in exiting.  All of my trades have had tight bid/ask spreads and it still took a while to hit.  People seem to be really stingy in their bids.

When I get out of my current trade I have a choice about going for the Jan 2019 or Jan 2020 strikes.  The 2020 obviously is safer but given how the 2019s have increased in value (only 4-8% given 30% decay in underlying) I'm guessing the 2020s will move very little.  I might stick with the 2019s and accept more risk.
Title: Re: Fun with VIX options
Post by: GreenEggs on December 18, 2017, 01:55:51 PM
This is an interesting topic.  I'm glad to see the active participation and the Q&A that's going on.  I'll read a bit more to gain an understanding and try paper trading after the holidays.  :)
Title: Re: Fun with VIX options
Post by: starguru on December 18, 2017, 04:12:43 PM
One remaining question that I don't understand is what the effect of the VIX being so low will be on this strategy.  Clearly it performs well when VIX is falling (well, VIX futures), but with VIX under 10, can it really go any lower?  I understand there is a contango effect that might keep this trade profitable, but I wonder if this might be a more effective endeavor when VIX has room to fall....
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on December 18, 2017, 04:23:46 PM
One remaining question that I don't understand is what the effect of the VIX being so low will be on this strategy.  Clearly it performs well when VIX is falling (well, VIX futures), but with VIX under 10, can it really go any lower?  I understand there is a contango effect that might keep this trade profitable, but I wonder if this might be a more effective endeavor when VIX has room to fall....

It depends...  At low ^VIX, you often see the premiums increase as volatility spikes as the risk premium rises faster than the loss in "moneyness".   I've sold into spikes multiple times for a tidy profit.  The contango effect is powerful.  The only thing that can counteract it for a "long" period of time is slow but steadily increasing ^VIX that holds the futures in backwardation and keeps them there.  That would be a peculiar market.  The old adage is the market climbs the stairs and then descends on the elevator.  It doesn't have to be that way but that is way it "usually" is. 

For certain, you pays your money, you takes your chances.  It is just in this case, contango rigs the game in your favor with any sufficiently long investing horizon.
Title: Re: Fun with VIX options
Post by: RyanH on December 18, 2017, 06:18:07 PM
I got in on this trade because of this thread, thanks Financial.Velociraptor for taking the time to explain it.  My position actually just exited today... I set a limit order to sell for a 10% gain.

Entry: 10/06/2017  Bought to Close 1 UVXY Jan 18 2019 20.0 Put @ 12.8
Exit:    12/18/2017   Sold 1 UVXY Jan 18 2019 20.0 Put @ 14.7

My question now is, when to get back in?  Now that UVXY is in single digits, would it be better to wait for a split before getting back in?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on December 19, 2017, 11:44:37 AM
I got in on this trade because of this thread, thanks Financial.Velociraptor for taking the time to explain it.  My position actually just exited today... I set a limit order to sell for a 10% gain.

Entry: 10/06/2017  Bought to Close 1 UVXY Jan 18 2019 20.0 Put @ 12.8
Exit:    12/18/2017   Sold 1 UVXY Jan 18 2019 20.0 Put @ 14.7

My question now is, when to get back in?  Now that UVXY is in single digits, would it be better to wait for a split before getting back in?

I usually get back in immediately after a sale at a lower strike.  The upcoming reverse split will not hurt your position or materially impact your liquidity.  I've held through several of them.  It is a non-event.
Title: Re: Fun with VIX options
Post by: talltexan on December 19, 2017, 12:42:03 PM
Suppose you split X-for-1; your 1 contract would become X contracts, right?
Title: Re: Fun with VIX options
Post by: ILikeDividends on December 19, 2017, 12:55:37 PM
Suppose you split X-for-1; your 1 contract would become X contracts, right?

It would have to be a reverse split; i.e., 1-for-X. The last one, in July, was 1 for 4.

In that scenario (if I understood up-thread commentary), your 100 share contracts would become 25 share contracts, to cover the same amount of equity as your original contract. 

All things being equal, the underlying would quadruple in price, so it would seem your contracted strikes should also quadruple, but I'm not entirely sure if they would.
Title: Re: Fun with VIX options
Post by: jacquespluto on December 20, 2017, 10:52:31 AM
It's been a great run over the past month.  My XIV shares purchased 33 days ago are now up 27% on a move from $107 to $136.  This is a similar strategy to VR's, taking advantage of contango with VIX. 
Title: Re: Fun with VIX options
Post by: talltexan on December 20, 2017, 12:53:19 PM
I'm consoling myself on having missed the crypto-currency wave by thinking about the 30% annualized return i'll be getting on this trade.

Because 30% is almost as good as 1,300%
Title: Re: Fun with VIX options
Post by: ILikeDividends on December 20, 2017, 04:52:42 PM
Today I established a position in 18 contracts of UVXY 01/17/2020 6.00 P; filled at $4.30.  Before my order, the bid was 4.00, and the ask was 4.90.  The last trade, before my order, was also at 4.30.

I put my limit order significantly below the midpoint between bid and ask, at 4.30, and it filled immediately. 

Schwab, in your account, quotes current price at the midpoint. So I instantly show a $200 gain for the day.  I understand that isn't a "real" gain. Good luck trying to realize that today, eh?

But because the order filled instantly, I'm wondering whether I way overpaid, or did I actually get lucky?   Or is this just a "ho-hum," not too bad, not too good, business as usual kind of outcome.


At any rate, lesson learned for the future: start your buy limit at the bid, and work it up from there.

(Criticism welcome; the harsher the better)
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on December 20, 2017, 05:38:25 PM
Today I established a position in 18 contracts of UVXY 01/17/2020 6.00 P; filled at $4.30.  Before my order, the bid was 4.00, and the ask was 4.90.  The last trade, before my order, was also at 4.30.

I put my limit order significantly below the midpoint between bid and ask, at 4.30, and it filled immediately. 

Schwab, in your account, quotes current price at the midpoint. So I instantly show a $200 gain for the day.  I understand that isn't a "real" gain. Good luck trying to realize that today, eh?

But because the order filled instantly, I'm wondering whether I way overpaid, or did I actually get lucky?   Or is this just a "ho-hum," not too bad, not too good, business as usual kind of outcome.


At any rate, lesson learned for the future: start your buy limit at the bid, and work it up from there.

(Criticism welcome; the harsher the better)

I start low and work up until the NBBO shows just my contracts on the bid ledger.  I'm frequently surprised how far below the last trade I get filled at.  Start low and be patient.  Opposite when exiting.  Start at that ask and work down/ be patient.  You probably did OK.  If the last fill was between bid/ask, it was probably filled by the market maker rather than a non-broker counterparty.  They will always shave a few cents off of you but it is a  small price to pay for their liquidity.
Title: Re: Fun with VIX options
Post by: talltexan on December 21, 2017, 07:11:16 AM
18 contracts?

You guys are already jumping into big orders! I've only got about $600 all in, because it's part of a trading account where that represents about six months of dividends. I took this barbell approach figuring I wouldn't worry about the wipeout if volatility spikes because the dividends will make me whole.
Title: Re: Fun with VIX options
Post by: hgjjgkj on December 21, 2017, 10:37:31 AM
I looked at the XIV trade and the 5 year charts on Yahoo and Google. It looks like up until 2017, buying vix Jan 1 and holding until Dec was not a winning strategy and the only thing proving that an XIV buy and hold is a winning strategy is the fact that 2017 had a huge run up
Title: Re: Fun with VIX options
Post by: talltexan on December 21, 2017, 11:42:10 AM
I also figure that--starting with $600 and realizing 30% annual gains--I should be able to retire in about 2045.
Title: Re: Fun with VIX options
Post by: ILikeDividends on December 21, 2017, 12:44:36 PM
18 contracts?

You guys are already jumping into big orders!
I've only got about $600 all in, because it's part of a trading account where that represents about six months of dividends. I took this barbell approach figuring I wouldn't worry about the wipeout if volatility spikes because the dividends will make me whole.
It's an appropriate size for my portfolio; i.e., a very small %.  I've been paper-trading this strategy for well over a month (ever since UVXY ~@16), and I've satisfied myself with its potential before jumping in. The contracts expire a little less than 25 months from now, so I'm comfortable with the time available to ride through any spikes in volatility.

I'd actually be comfortable with a 13 month time frame (per my paper-trading), but I think a 25 month time frame is a more than an adequate runway to start getting some real experience with this strategy.

I'm not out to make a killing.  If I can turn a 10% profit every two months or so, fairly consistently, then I'll be quite happy with a 60% annualized return (or even 30%, for that matter).  It would give me the option of moving a much larger allocation from fixed income into equities than I am risking in this trade, while keeping my income relatively constant, even if a little less regular.
Title: Re: Fun with VIX options
Post by: jacquespluto on December 22, 2017, 11:48:21 AM
I looked at the XIV trade and the 5 year charts on Yahoo and Google. It looks like up until 2017, buying vix Jan 1 and holding until Dec was not a winning strategy and the only thing proving that an XIV buy and hold is a winning strategy is the fact that 2017 had a huge run up

I definitely wouldn't suggest a buy and hold strategy for the XIV.  If the VIX is in backwardation, then you will get very large drawdowns.  The trick is to be in when the VIX is in contango and then move to cash or possibly even VXX when the VIX is in backwardation.

However, even a buy and hold strategy will typically outperform the market in the long-run if the long-term trend is up.  However the swings will be dramatic so the key is to limit those big drawdowns by exiting XIV when the VIX term structure appears to be moving out of contango.
Title: Re: Fun with VIX options
Post by: hgjjgkj on December 22, 2017, 05:41:22 PM
I looked at the XIV trade and the 5 year charts on Yahoo and Google. It looks like up until 2017, buying vix Jan 1 and holding until Dec was not a winning strategy and the only thing proving that an XIV buy and hold is a winning strategy is the fact that 2017 had a huge run up

I definitely wouldn't suggest a buy and hold strategy for the XIV.  If the VIX is in backwardation, then you will get very large drawdowns.  The trick is to be in when the VIX is in contango and then move to cash or possibly even VXX when the VIX is in backwardation.

However, even a buy and hold strategy will typically outperform the market in the long-run if the long-term trend is up.  However the swings will be dramatic so the key is to limit those big drawdowns by exiting XIV when the VIX term structure appears to be moving out of contango.

I see, but by the time Vix has entered backwardation won't XIV have already collapsed?
Title: Re: Fun with VIX options
Post by: jacquespluto on December 23, 2017, 04:36:55 PM
I looked at the XIV trade and the 5 year charts on Yahoo and Google. It looks like up until 2017, buying vix Jan 1 and holding until Dec was not a winning strategy and the only thing proving that an XIV buy and hold is a winning strategy is the fact that 2017 had a huge run up

I definitely wouldn't suggest a buy and hold strategy for the XIV.  If the VIX is in backwardation, then you will get very large drawdowns.  The trick is to be in when the VIX is in contango and then move to cash or possibly even VXX when the VIX is in backwardation.

However, even a buy and hold strategy will typically outperform the market in the long-run if the long-term trend is up.  However the swings will be dramatic so the key is to limit those big drawdowns by exiting XIV when the VIX term structure appears to be moving out of contango.

I see, but by the time Vix has entered backwardation won't XIV have already collapsed?

It will be down for sure, but lets say it drops 15% the day it crosses out of contango - if you are up 30-50% on that trade which is fairly typical when XIV stays in contango for a few months, you would give back some profits but still an amazing return.  I have some indicators I use to look at when the term structure appears to be moving out of contango and the idea is to be able to anticipate that move.  If you get a false alarm, you can always re-buy.  I'm not looking for the whole pie, just some big slices :)  Also, this isn't something that happens often, we are talking about 5 times over the past 10 years I believe.  Most of the time the market is in an a slow upward drift for all the reasons discussed in these forums and therefore VIX is in contango.

In the event of a black swan event which you might be referring to - I do carry some very cheap out of the money calls on VIX.  I view this as insurance on my XIV trading as well as some other market-neutral style trading I do on the SPX. It does eat up some profits but we are talking ~2% and it helps me sleep a little better at night knowing that in the event the market crashes I have a solid hedge that will help offset losses.
Title: Re: Fun with VIX options
Post by: hgjjgkj on December 26, 2017, 03:50:05 PM
Thanks for the follow up. So you are using a site like this http://vixcentral.com/ to watch and see for when it slips into backwardation, at which point you bail until the curve shows signs of upward sloping contango again.  I think this makes sense provided you have had time in the market. For example, I could start this trade today and make .89% but if Vix spikes tomorrow I would be wiped out
Title: Re: Fun with VIX options
Post by: jacquespluto on December 27, 2017, 08:21:15 AM
Thanks for the follow up. So you are using a site like this http://vixcentral.com/ to watch and see for when it slips into backwardation, at which point you bail until the curve shows signs of upward sloping contango again.  I think this makes sense provided you have had time in the market. For example, I could start this trade today and make .89% but if Vix spikes tomorrow I would be wiped out

Yes, exactly.  I'm not familiar with that website, but I imagine it uses a similar approach.  There is definitely a risk of getting in right before a big drop.  But the same can be said about any investment.  This is a strategy which I plan to implement long-term, so I can't be too concerned about that.  Also I limit my risk by only allocating a certain % of my funds to this strategy. 
Title: Re: Fun with VIX options
Post by: starguru on December 28, 2017, 06:19:00 AM
My GTC sell order at $6.20 for the Jan 2019 PUTS at 10 hit two days ago.  A bit confused as the bid never seemed to get that high, but not complaining.  That represents a 12.5% profit ($625) for a trade in force 47 days.  The big question now for re-entering is whether to go for the Jan 2020 or Jan 2019 PUTS.  I'm a bit scared as UVXY has basically hovered around 10 for more than a week, but I guess I need to hold faith in the contango. 
Title: Re: Fun with VIX options
Post by: talltexan on December 28, 2017, 07:08:41 AM
At first I found it really appealing to have a sell order for some pre-determined return.

Unfortunately, it left me out of the market for a big increase, which meant that I missed most of the gains trying to find a re-entry point. Having two positions means I can mitigate some of that by taking only one off of the table at a time.
Title: Re: Fun with VIX options
Post by: ChpBstrd on December 28, 2017, 08:41:32 AM
What's the benefit of jumping in and out of the trade? All there is to do is occassionally roll down to a lower strike and occassionally roll up the duration.
Title: Re: Fun with VIX options
Post by: starguru on December 28, 2017, 09:10:32 AM
What's the benefit of jumping in and out of the trade? All there is to do is occassionally roll down to a lower strike and occassionally roll up the duration.
As I understand it (so I’m probably wrong) there are two reasons.  First you can buy a longer dated PUT for more security.   Second,  and I don’t fully understand why, it is better to own out of the money PUTs,  so as the underlying decays to your strike you want to move into a lower strike position.  Something about time value being more valuable than intrinsic value something something reasons. 


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Title: Re: Fun with VIX options
Post by: hgjjgkj on December 28, 2017, 09:16:58 AM
Nasdaq has a goodprice history of specific options but only for one year. for the 2019s it looks like there was a massive fall in july, this seems counter to the thought that contango will always let you win in this trade
Title: Re: Fun with VIX options
Post by: specialkayme on December 29, 2017, 09:10:06 AM
Thank you to all the contributors for the fantastic information in this thread. It has been a great read,
 and a wonderful learning experience for me.

If some of you don't mind, I have a few questions about some fundamental and basic things that I don't quite understand:

The trick is to be in when the VIX is in contango and then move to cash or possibly even VXX when the VIX is in backwardation.

How do you measure contango and backwardation?

I understand what the topics are, but not necessarily how to measure them, i.e. when to move from buying puts of UVXY to an alternative position..

There are ways to make a (lot) more money with this trade than with buying the long dated puts.  They all entail greater risk though. 

Would you mind explaining them?

Alternatively, I'm assuming a similar strategy would work for purchasing LEAPs calls on 3x stable ETFs like UPRO or puts of SPXU, no?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on December 29, 2017, 01:53:09 PM
There are ways to make a (lot) more money with this trade than with buying the long dated puts.  They all entail greater risk though. 

Would you mind explaining them?

Alternatively, I'm assuming a similar strategy would work for purchasing LEAPs calls on 3x stable ETFs like UPRO or puts of SPXU, no?

The simplest is a direct short sale of the underlying.  If you top up to maintain a fixed level of exposure after each decline, you can make well over 100% annualized.  This particular strategy is problematic for two reasons however.  The first is that the borrow rate is often quite high and deeply cuts into returns.  The second is shares to borrow become scarce during volatility events.  You can get forced out at the worst time possible.

There are two other options approaches that have a high risk/reward profile.  The first is a synthetic short.  The idea is to mimic the trade above but eliminate the problems of borrowing costs and unavailability of shares.  You need to continually top up the position as the underlying declines.  This trade is riskier than the long put in that the short call is "naked" or uncovered and can put you in a margin violation position if you don't mind position sizing when the trade moves against you during volatility events.

The last is a simple selling of naked calls on the underlying.  Same problem as before.  It eats up a lot of margin and has theoretically unlimited risk of losses.

I've used all four strategies personally and gravitate towards buying long puts after learning some hard lessons.
Title: Re: Fun with VIX options
Post by: ChpBstrd on December 29, 2017, 09:06:33 PM
Here's a quick contrast.

Synthetic Short
if I have 10k in my UVXY gambling account and I want to do a synthetic short, I will be required to keep lots of cash so that I can *probably* escape the short call if UVXY skyrockets. I put together a simulated synthetic short in TD Ameritrade at the $10 strike for Jan 2019 and the "effect on buying power" would be $8.19 per share! Buying the position itself would require another $0.42 debit per share. TL;DR: With my $10k I could harness about 1,100 shares this way. The sidelined cash reduces leverage to ~-1.1X and risk is still unlimited. Worse, my broker will force me out of the position if a typically brief volatility event occurs and I come anywhere close to not having enough cash on the sidelines to buy UVXY at whatever it's spiked to. However, the delta on this trade is a whopping 0.93, so you're earning 93% of the inverse of UVXY.

Long Put
Had I bought long puts instead, there would be no requirement to hold cash on the sidelines. I could spend 100% of my account on puts. My risk would be that they all expire worthless - a 100% loss, actually less than above. If I'm buying Jan 2019 puts at the $10 strike for today's price of ~ $6.17 per share my $10k account could harness 1,600 shares or ~-1.6X leverage. Plus there would be no risk of being assigned/forced out/margin called; I could ride out a price spike and recover. The only downsides are I would no longer be theta neutral and my delta would be A LOT lower. E.g. these puts have a delta of -0.15, so UVXY would have to fall $1 for my put to increase from $6.17 to $6.32 (a whopping 2.4%)(in all fairness, the price of the put would eventually converge).

Summary
So for tomorrow's $1 fall in price and all other factors being equal, the synthetic short earns me ~0.93 * 1100 shares = $1023 and the long put earns me ~0.15 * 1600 shares = $240. However, the two trades are incomparably different in risk. With the long put, I risk losing 100% of my investment if UVXY is above $10 in a year, and some of my investment if it is above $3.83 but less than $10. With the synthetic short, however, my risk is unlimited. More importantly, I am highly likely to be stopped out at a loss during the next North Korean missile test or inflation blip. The odds of losing are much higher for the synthetic, hence the 4X higher (in the short-term) reward. It might be tempting to just buy SVXY given the low leverage of the synthetic short + cash, and skip the whole assignment risk thing.
Title: Re: Fun with VIX options
Post by: tsukuba on January 01, 2018, 10:57:37 PM

One sure wonders who takes the other side of these bets.  Hedge funds/automated trades?  It's interesting. 


I suppose it is those who want to hedge should there be market volatility, for example, people who are normally long on the market, but want to have some upside should there be a calamity.
Title: Re: Fun with VIX options
Post by: jacquespluto on January 02, 2018, 02:28:22 PM

One sure wonders who takes the other side of these bets.  Hedge funds/automated trades?  It's interesting. 


I suppose it is those who want to hedge should there be market volatility, for example, people who are normally long on the market, but want to have some upside should there be a calamity.

Yes, that's exactly right.  For example, I spend about $200-$300 a month buying very cheap OTM calls on the VIX that work as a hedge.  This is like insurance for me.  If we get a black swan  event where the market goes down 7%-10% in one day, the VIX calls I have will offset the losses for some market neutral trading I do on SPX.  I view this as insurance or a necessary business expense to ensure that I don't wipe out my trading capital which is fundamental to my monthly income.  Overall it's a very small drag on my return so not a big deal.  However, you can imagine some of the hedges that large firms have on.
Title: Re: Fun with VIX options
Post by: jacquespluto on January 16, 2018, 02:53:09 PM
I closed my XIV trade today as some of my indicators are starting to turn.  The closed trade netted a 29.3% gain in 61 days.  It's very possible that I'll re-enter shortly if VIX retraces over the next few days.
Title: Re: Fun with VIX options
Post by: specialkayme on January 16, 2018, 03:07:25 PM
jacquespluto - do you mind going over what indicators you're using?
Title: Re: Fun with VIX options
Post by: jacquespluto on January 17, 2018, 11:34:08 AM
jacquespluto - do you mind going over what indicators you're using?

I'm looking at a number of things.  Here are a few of the most important.

- VIX and VIX futures term structure
- 10 DMA VXV/ 10 DMA VIX (I track this daily and look at the slope).  I read a white paper a while back where this was the only indicator used and produced very good results.  I think they used a number of 1.05 or 1.10 and higher to remain in XIV.
- Overall market analysis (specifically the chart on the SPX)

There are a number of websites dedicated to similar analysis.  One which has been running for a while and I do look at from time to time is xivinvestment.com. Although I believe they are on a one-day lag with their recommendations.  A lot of times I don't necessarily agree with their buy/sell signals and I'm not really sure what they use.  For example, they issued a sell recommendation in early December that I didn't agree with and it looks like they held through yesterday and today - based on my indicators I decided it was a good time to close my position and wait to see what happens over the next few days for a possible re-enter.
Title: Re: Fun with VIX options
Post by: specialkayme on January 17, 2018, 02:58:30 PM
I clearly have much to read, and much more to understand. Thank you for pointing me in the right direction though.

I can't say I fully grasp what you're pointing at, and many of my searches so far are starting to make my head hurt with abbreviations and terms I'm not familiar with. But I find it exciting to learn a new investment technique.

xivinvestment.com seems interesting, although I've never been a fan of "black box" investing. It also may be a case of someone that isn't in any way qualified to express such an opinion stating this, but it appears xivinvestment.com is taking a somewhat conservative approach on triggering it's "sell" signals, opening up to considerable losses. Most notably around August 9th (a "Hold" through a 13% drop) through September 13th (when it appears to have come back to closely where it was), November 9th through 20th (7% drop), and the "miss" on the January 16th drop. But I'm likely looking a gift horse in the mouth.

Anyway, thank you so much for the information, and the opportunity to learn and grow.
Title: Re: Fun with VIX options
Post by: v8rx7guy on January 17, 2018, 04:30:13 PM
Getting nervous about your $2K yet?
Title: Re: Fun with VIX options
Post by: jacquespluto on January 17, 2018, 05:20:48 PM
specialkayme - Here is the article I was referencing earlier.  It gives a lot of good information and I'm basically implementing a strategy very similar to the strategy 3 referenced.  I'm just adding some additional indicators that help me find comfort in the trade.  Anyway, it's a good read.

http://www.naaim.org/wp-content/uploads/2013/10/00R_Easy-Volatility-Investing-+-Abstract-Tony-Cooper.pdf

Title: Re: Fun with VIX options
Post by: specialkayme on January 17, 2018, 06:36:01 PM
Thank you so much for the article jacquespluto. I'll put it at the top of my reading queue.
Title: Re: Fun with VIX options
Post by: specialkayme on January 24, 2018, 09:37:57 AM
I'm having a hard time working through something, and it's tangentially related to some of the topics on this thread, so I was hoping to throw them out there and see what advice I can get, or direction.

Some of the volatility strategies that have been discussed on here involve buying/holding XIV or VXX to capture either increases in value on the volatility markets or capture contango/backwardation, buying options on XIV or VXX, or buying options on leveraged ETFs to capture the same thing.

I'd only ever be interested in going long on options of an ETF if I was comfortable owning the ETF directly. If not, I'd be putting a leveraged play on an asset that I would never own, which doesn't compute for me. So before I can say that I'd feel comfortable owning options on an leveraged volatility ETF long term (UVXY), I'd have to decide if I feel comfortable owning a leveraged volatility ETF long term.

People have advised me, repeatedly, to stay away from long positions on leveraged ETFs. Many articles discuss how you'll be killed by holding long positions on leveraged ETFs as a result of Leveraged Decay, Volatility Drag, or the constant leverage trap (discussed more in depth here https://pensionpartners.com/leveraged-etf-myths/ with a good chart showing almost guaranteed loss over a long time period here http://etfdb.com/leveraged-etfs/leveraged-decay-the-dangers-of-long-term-investing-with-etfs/ and here http://etfdb.com/media/W1siZiIsIjIwMTUvMTAvMDYvOTNmaWdiZXRic19Fcm9zaW9uX29mX1BvcnRmb2xpb19WYWx1ZS5wbmciXSxbInAiLCJ0aHVtYiIsIjc1MHhcdTAwM2UiXV0/Erosion%20of%20Portfolio%20Value.png).

But when you compare long positions taken in x2 and x3 ETFs (like SSO and UPRO) over progressive periods of time, I can't find massive losses of value from leveraged decay or volatility drag. Granted, due to compounding leverage, many of the ETFs over long periods don't produce guaranteed x2 or x3 mirrors of the underlying asset and may produce significantly more or significantly less, depending on the direction, but the actual returns over the past 8 years or so are actually much better than the underlying ETF (in the past 10 years s&p 500 is up 103.7% while x2 SSO is up 230.7%, which makes it over the long term a x2.22 instead of a x2 - - - - and the s&p 500 is up 209.7% in the past 8.5 years while the x3 UPRO is up 2,225.4%, which makes it over the long term a x10.6 instead of a x3).

So where's the volatility drag, the increased fees, and the massive loss of equity?

No doubt they are SIGNIFICANTLY riskier assets, as in down markets you'll lose more than x2 or x3, but if you believe you'll make money in the underlying asset, why not go for the leveraged asset? If you believe VXX is a good play, why wouldn't UVXY be a good play?

While I can find significantly more articles on why you SHOULDN'T own leveraged ETFs long term, there are a very few that say its ok (https://seekingalpha.com/article/2986586-what-the-numbers-say-about-long-term-investments-in-leveraged-etfs for example).

So what am I missing here? Why am I not seeing the massive decrease in value over long periods of time that all the articles say I should be seeing? Or is my snapshot of time (8 years, 10 years, ect.) just poor snapshots of time to be looking at?
Title: Re: Fun with VIX options
Post by: ChpBstrd on January 24, 2018, 10:57:26 AM
^ When you buy a put option (sometimes referred to as a "long put") you profit from a decline in the price of the underlying asset. If I think UVXY is a stinker, I buy a put to profit from its decline. It is confusing because with options, the term "long" refers to buying either a call or a put and the term "short" refers to selling either a call or a put. Thus having a long option position could be a bet that the stock will rise (a call) or that the stock will fall (a put). Vice versa for a short options position.

You are correct that the performance of leveraged ETFs often does not match their stated objectives. This is explained by contango and backwardization in derivatives markets, management fees, and compounding effects, among other causes. They are only selling an approximation of a hypothetical return.
Title: Re: Fun with VIX options
Post by: specialkayme on January 24, 2018, 11:37:39 AM
^ When you buy a put option (sometimes referred to as a "long put") you profit from a decline in the price of the underlying asset. If I think UVXY is a stinker, I buy a put to profit from its decline.

But can you think UVXY is a stinker all by itself? UVXY isn't anything independent of itself, other than a leveraged play on VIX. So, if you believed VIX was a stinker, you'd buy a put of either VXX or UVXY, right? And the only reason you'd buy a put of UVXY over VXX is if you believed that it moved rationally, and predictably, in relation to VIX, correct? And many of the articles I've read indicate that leveraged ETFs don't move predictably due, in part, to volatility drag and similar concepts.

So am I missing something? Or is there something about UVXY being leveraged that causes it to move more predictably in contango or backwardization than the underlying VIX? Or is it that all of the reasons ETFs aren't "supposed" to move predictably only cause the values to decrease and never increase beyond expectations (which a view of the UPRO's performance over the last 8 years clearly can't be the case)?

BTW - thank you so much for taking the time to read my likely nonsense and reply. There are very few places, and even fewer people, who are willing to talk about this type of thing that actually know what they're talking about.
Title: Re: Fun with VIX options
Post by: eudaimonia on January 24, 2018, 11:56:22 AM
^ When you buy a put option (sometimes referred to as a "long put") you profit from a decline in the price of the underlying asset. If I think UVXY is a stinker, I buy a put to profit from its decline.

But can you think UVXY is a stinker all by itself?

BTW - thank you so much for taking the time to read my likely nonsense and reply. There are very few places, and even fewer people, who are willing to talk about this type of thing that actually know what they're talking about.

Yes, UVXY has drag that significantly affects prices. I would never hold this product in a long position. Here is a webpage that has a good description of how UVXY (and some of the other volatility products) work: https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on January 24, 2018, 12:15:07 PM
UVXY and VXX are both terribly constructed.  They use the 14 and 40 day futures on ^VIX and roll the position daily.  The normal state of affairs in futures markets is CONTANGO, thus VXX/UVXY daily sell a 'cheap' asset to buy a more 'expensive' one.  The long term decay is fierce and very predictable. 
Title: Re: Fun with VIX options
Post by: specialkayme on January 24, 2018, 12:22:49 PM
Here is a webpage that has a good description of how UVXY (and some of the other volatility products) work: https://sixfigureinvesting.com/2015/03/how-does-uvxy-work/

From that site:

Quote
For a leveraged fund longer term results depend on the volatility of the market and general trends.  In UVXY’s case these factors usually (but not always) conspire to dramatically drag down its price when held for more than a few days.
The leverage process isn’t the only drag on UVXY’s price. The VIX futures used as the underlying carry their own set of problems. The worst being horrific value decay over time.  Most days both sets of VIX futures that UVXY tracks drift lower relative to the VIX—dragging down UVXY’s underling non-leveraged index.   This drag is called roll or contango loss.

So it's entirely possible, and to some extent expected for UVXY, due to its leveraged position, to decline when VIX isn't, or even modestly increasing, correct?

Would this hold true for all leveraged ETFs, or is it that UVXY, due to it tracking a volatility index rather than a "traditional" index?

I guess I'm having a hard time understanding why UVXY is projected to decrease due to its leveraged position, somewhat (although not entirely) outside of its tracking of the VIX, while other leveraged ETFs (like SSO or UPRO) don't.
Title: Re: Fun with VIX options
Post by: ChpBstrd on January 24, 2018, 01:59:30 PM
UVXY is locked into a contract trading methodology that very roughly approximates the ^VIX between the market open and market close each day, but causes severe losses of contract time value over timeframes longer than a day. The fund's own prospectus advises that it is intended for one-day holding periods, not as a long term investment, because it declines in the long term. The contracts it holds long decay faster than the contracts it holds short.

Throw up a chart with ^VIX and UVXY and you'll visually see this decay compared to the index it's supposed to track. For years.

My opinion is that UVXY and its opposite sister by the same fund company SVXY are essentially set up to trade contracts with each other. The fund company's end goal of course is to collect their high management fee for both funds. SVXY shorts the ^VIX and has historically skyrocketed. UVXY goes long the ^VIX and has historically tanked. I think SVXY essentially feeds on UVXY, but money keeps flowing into UVXY from investors looking for one-day hedges. Money flows into SVXY because it can profitably sell contracts to UVXY and the broader market.

I would love to find other funds with such an utter indifference to long-term value AND a liquid options market. However, I think most leveraged funds make at least some effort to control contango. UVXY is somewhat unique in its promise to lose money long term.
Title: Re: Fun with VIX options
Post by: specialkayme on January 24, 2018, 02:19:28 PM
I would love to find other funds with such an utter indifference to long-term value AND a liquid options market. However, I think most leveraged funds make at least some effort to control contango. UVXY is somewhat unique in its promise to lose money long term.

Perhaps my inability to comprehend lies in my attempt to match/compare the fundamentals behind UVXY to other leveraged ETFs, when there is no comparison.

In any event, thank you for the explanation and the patience. It is greatly appreciated.
Title: Re: Fun with VIX options
Post by: hgjjgkj on January 24, 2018, 02:54:31 PM
XIV trade is not doing that well right now btw
Title: Re: Fun with VIX options
Post by: eudaimonia on January 24, 2018, 03:42:04 PM

Perhaps my inability to comprehend lies in my attempt to match/compare the fundamentals behind UVXY to other leveraged ETFs, when there is no comparison.


UVXY is a derivative of a derivative product and is nothing like other leveraged ETFs. Volatility products are a unique little niche unto themselves.

XIV trade is not doing that well right now btw

I was out of XIV on Friday. Since then we've seen the back month VX futures rising in a pattern that shows short term concern about long-dated SPX option prices. Also the SPX skew has decreased significantly indicating that ATM options are starting to become properly valuated again. Translation is that there is some short-term risk on the horizon although nothing that indicates a break in the long-term bullishness of the SPX.
Title: Re: Fun with VIX options
Post by: hgjjgkj on January 24, 2018, 03:52:51 PM

[/quote]

I was out of XIV on Friday. Since then we've seen the back month VX futures rising in a pattern that shows short term concern about long-dated SPX option prices. Also the SPX skew has decreased significantly indicating that ATM options are starting to become properly valuated again. Translation is that there is some short-term risk on the horizon although nothing that indicates a break in the long-term bullishness of the SPX.
[/quote]

To be clear are you looking at the % contango in periods 3-8 on Vix Central, noting that it is decreasing, and then bailing out?

http://vixcentral.com/

I pulled historical from Friday and compared. Though I am not sure what the box labeled Month 7 to 4 contango means but it decreased as well...
Title: Re: Fun with VIX options
Post by: eudaimonia on January 25, 2018, 09:10:34 AM


To be clear are you looking at the % contango in periods 3-8 on Vix Central, noting that it is decreasing, and then bailing out?

http://vixcentral.com/

I pulled historical from Friday and compared. Though I am not sure what the box labeled Month 7 to 4 contango means but it decreased as well...
[/quote]

Essentially you are correct; however, it is difficult to see the differences in the back months on vixcentral. I'm using TOS to do my analysis.
Title: Re: Fun with VIX options
Post by: MustachioedPistachio on January 30, 2018, 06:21:25 AM
I've been on the sidelines a bit over a month now. It's been interesting keeping an eye on it all, however. My paper trading account is giving me a good idea of the roller coaster ride. :)
Title: Re: Fun with VIX options
Post by: talltexan on January 31, 2018, 08:54:13 AM
UVXY has really spiked lately: my options position ($9 puts) went from up $150 to down $150 over about the last ten trading days...Hope you guys are hanging in there and staying strong with the strategy.
Title: Re: Fun with VIX options
Post by: ChpBstrd on January 31, 2018, 11:13:13 AM
UVXY has really spiked lately: my options position ($9 puts) went from up $150 to down $150 over about the last ten trading days...Hope you guys are hanging in there and staying strong with the strategy.
This is also a good demonstration of delta on long term options. My puts only moved down a few percent, even as UVXY threw a tantrum. Today (UVXY down 3.5%) they're mixed with bid-ask spreads of 6-7c.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on January 31, 2018, 02:54:43 PM
UVXY has really spiked lately: my options position ($9 puts) went from up $150 to down $150 over about the last ten trading days...Hope you guys are hanging in there and staying strong with the strategy.

I'm down a trivial amount.  It is a hassle having to wait longer but I've waited UVXY out before.  It has never failed to return to wicked contango.
Title: Re: Fun with VIX options
Post by: talltexan on February 01, 2018, 08:10:22 AM
I put in a lowball bid on some September options during the spike as a kind of weak "rebalance". I don't think they got down low enough that my order executed.
Title: Re: Fun with VIX options
Post by: ILikeDividends on February 02, 2018, 05:53:29 PM
UVXY has really spiked lately: my options position ($9 puts) went from up $150 to down $150 over about the last ten trading days...Hope you guys are hanging in there and staying strong with the strategy.
I've got just a bit less than 2 years of life left in my puts.  I'm yawning through this spike. ;)
Title: Re: Fun with VIX options
Post by: talltexan on February 05, 2018, 08:12:44 AM
UVXY got high enough that my bid for a September put option just tripped. Current total exposure still about $600 in a taxable account, but cost basis for that is now about $860. Dividends will replace most of that over the seven months between now and September.
Title: Re: Fun with VIX options
Post by: starguru on February 05, 2018, 02:28:32 PM
Well I bought before when UVXY was between 9 and 10.   I have the January 2019 PUTS.  Not sure how bad this situation is but I’m not worried.  Yet.


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Title: Re: Fun with VIX options
Post by: eudaimonia on February 05, 2018, 04:35:44 PM
Hope folks kept their short-vol positions modestly sized today. XIV is particularly out of whack being down 80% in the overnight market.
Title: Re: Fun with VIX options
Post by: jacquespluto on February 05, 2018, 04:45:48 PM
XIV likely just triggered it's "termination event" in the prospectus.  It will be interesting to see what the implications are if that's the case.
Title: Re: Fun with VIX options
Post by: ILikeDividends on February 05, 2018, 04:54:41 PM
UVXY was in the 9ish area when I paid $4.30 for my 2 year 6 strike puts a few weeks ago.

Today, with UVXY now above 22, today's last trade on those same options was at $4.08.  It really is astonishing to see such a trivial difference with the underlying up over 100% since I put the trade on.  If I only looked at the price of those puts, I would think that not much of anything has happened over the last two days.
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 05, 2018, 06:57:35 PM
UVXY was in the 9ish area when I paid $4.30 for my 2 year 6 strike puts a few weeks ago.

Today, with UVXY now above 22, today's last trade on those same options was at $4.08.  It really is astonishing to see such a trivial difference with the underlying up over 100% since I put the trade on.  If I only looked at the price of those puts, I would think that not much of anything has happened over the last two days.

Yes, it is nice not to be holding a February expiration right now, which is why we don't play with the short duration puts.

With the long duration puts, there's a certain sweet spot where the increasing volatility of UVXY's price offsets the increase in UVXY's price, resulting in an almost-wash even as all hell breaks loose in the markets. Do you realize your speculative option on UVXY lost less value in the past couple weeks (5.1%) than you would have lost putting the same money into the index (VTI down 6.4%)? 
Title: Re: Fun with VIX options
Post by: spud1987 on February 05, 2018, 08:41:11 PM
VIX measures stock market volatility. It goes up when volatility goes up. Right now it is near an all time low (around $8-9) since the stock market has been steady and calm. When volatility rises, it spikes sharply. For example, in October '08 it hit $89.

I recently purchased some out of the money call options with a Feb. 2018 expiration at $20. This cost me $1.50 per option. If the VIX is less than $20 in Feb. 2018 I lose all my money. If VIX is $35 in February, I 10X my money.

Only a $2k investment (less than .2% of my NW), but I view this as insurance against a market downturn. Nearly all my money is in Vanguard index funds (60/40 stock/bond split), but sometimes I make some small speculative bets to try and hit it big.

OP here. I sold half my options back in November for no gain/loss when there was a slight VIX spike.

Kept the rest until today. I make about 5k in gains total. Not great compared to the 30k I lost in equities today, but I'm just glad my little experiment paid off.
Title: Re: Fun with VIX options
Post by: hgjjgkj on February 06, 2018, 08:09:07 AM
Does UVXY have a redemption provision as well?
Title: Re: Fun with VIX options
Post by: RichMoose on February 06, 2018, 10:17:27 AM
Wow! I don't know how people playing with this trade on this forum made out. But XIV and SVXY blew up! XIV might be dead and SVXY posted a NAV of just $4/unit yesterday. Incredible actually!

I'm so glad I got out of my VIX trade a few days ago when it hit my stop, lost less than 10% on that position.
Title: Re: Fun with VIX options
Post by: eudaimonia on February 06, 2018, 11:09:20 AM
Wow! I don't know how people playing with this trade on this forum made out. But XIV and SVXY blew up! XIV might be dead and SVXY posted a NAV of just $4/unit yesterday. Incredible actually!

I'm so glad I got out of my VIX trade a few days ago when it hit my stop, lost less than 10% on that position.

I made out quite nicely as I'd been out of XIV for the last couple weeks and long VXX. Made my yearly target in a day.

XIV and SVXY are were derivative of derivative products and there were a lot of retail traders who hopped on the bandwagon not understanding how these products traded (or could trade).
Title: Re: Fun with VIX options
Post by: talltexan on February 06, 2018, 11:20:27 AM
I've got June and Sep puts on UVXY, both of them have very large bid/ask spreads right now. Sigh.
Title: Re: Fun with VIX options
Post by: eaknet on February 06, 2018, 01:22:05 PM
I'll fess up.  I gambled. 

Before the close yesterday I bought UVXY in my Robinhood account.  Put in a market order to sell this morning at the open.  Gained 66% overnight.  I feel kind of dirty.

It was dangerous, it was rolling the dice.  Hopefully I'll have learned my lesson and won't do it again.

The only redeeming factor is I did it with a very small amount of $ and would have been OK losing it all. 

</fessup>
Title: Re: Fun with VIX options
Post by: anisotropy on February 06, 2018, 01:33:28 PM
Now that they are closing down XIV, what will we little people use to gain the benefits of decreasing volatility?
Title: Re: Fun with VIX options
Post by: RichMoose on February 06, 2018, 01:40:20 PM
Now that they are closing down XIV, what will we little people use to gain the benefits of decreasing volatility?
Haha! I must say that I've certainly learned a lesson on betting with synthetic futures products.

XIV went from $10 to $160 in around 17 years. It lost all of that in a week!
Title: Re: Fun with VIX options
Post by: anisotropy on February 06, 2018, 01:42:31 PM
I think it's really just one day (yesterday).

Let's have a moment of silence for these brave "investors", although if I remember correctly, Credit Suisse was the biggest bag holder. But ya, what can we use going forward that does what XIV did?
Title: Re: Fun with VIX options
Post by: hgjjgkj on February 06, 2018, 01:51:37 PM
Now that XIV died, can folks elaborate more on what their signals were and what led them to pull out?
Title: Re: Fun with VIX options
Post by: RichMoose on February 06, 2018, 02:10:21 PM
Now that XIV died, can folks elaborate more on what their signals were and what led them to pull out?
I got into the trade quite late and just dipped a toe in. About half a normal position for me. I set my stop a bit over 90% of my purchase price. After making a quick 20% gain on paper, it turned and hit my stop a few days later. Basically I lost less than 1% of my total portfolio on the trade. However, I am very, very happy that I set the stop where I did. If the stop would have been only a few percentage points lower, I would have got my position completely wiped out in yesterday's after hours trading. That would have equally a loss of around 8% of my portfolio! Something I would not have been expecting at all.

After seeing the crazy decay and lurches the VXX and UVXY had gone through in the past few years I did not want to touch those ETFs, even if just for a short term trade. They seem to go up 30%, down 40%, up 70%, down 50% in just days in high volatility environments. I just couldn't see a logical way to trade that.

Hope that helps.
Title: Re: Fun with VIX options
Post by: talltexan on February 06, 2018, 02:16:56 PM
This marketwatch article also explains what went wrong with the XIV trade overnight Monday/Tuesday

https://www.marketwatch.com/story/the-stock-market-swoon-heres-how-to-think-about-it-and-what-to-do-2018-02-06 (https://www.marketwatch.com/story/the-stock-market-swoon-heres-how-to-think-about-it-and-what-to-do-2018-02-06)
Title: Re: Fun with VIX options
Post by: jacquespluto on February 06, 2018, 07:33:27 PM
Here's a good article describing what exactly happened with XIV and SVXY yesterday and how it spilled over to the market. 

https://realmoney.thestreet.com/articles/02/06/2018/how-xiv-and-svxy-went-rails-and-took-market-them?puc=twitter&cm_ven=TWITTER&utm_source=dlvr.it&utm_medium=twitter (https://realmoney.thestreet.com/articles/02/06/2018/how-xiv-and-svxy-went-rails-and-took-market-them?puc=twitter&cm_ven=TWITTER&utm_source=dlvr.it&utm_medium=twitter)

I've traded XIV over the past year or so with a lot of success, so I'm bummed to see it go.  But clearly it was not able to handle a move in the market like we just saw.  My last trade was a 29% gain over 2 months.  Luckily I haven't had a position for a few weeks as my indicators turned south.   I'll be looking for a similar trade once things settle, but will probably utilize VXX puts instead.  The key thing in volatility trading is to keep position sizing small as the risk to lose everything is always possible.

I was actually very close to pulling the trigger on going long VXX shares Friday as the front month went into backwardation.  I missed a big gain as those would have paid out very nice.
Title: Re: Fun with VIX options
Post by: thunderball on February 06, 2018, 07:38:31 PM
I'm curious if this guy survived the last few days:

http://www.businessinsider.com/former-target-manager-becomes-millionaire-using-short-volatility-trade-2017-8

...or perhaps his old Target is hiring?
Title: Re: Fun with VIX options
Post by: RecoveringCarClown on February 06, 2018, 08:20:01 PM
https://www.marketwatch.com/story/xiv-trader-ive-lost-4-million-3-years-of-work-and-other-peoples-money-2018-02-06 (https://www.marketwatch.com/story/xiv-trader-ive-lost-4-million-3-years-of-work-and-other-peoples-money-2018-02-06)

Ouchy!
Title: Re: Fun with VIX options
Post by: bacchi on February 06, 2018, 11:44:29 PM
Let's have a moment of silence for these brave "investors", although if I remember correctly, Credit Suisse was the biggest bag holder. But ya, what can we use going forward that does what XIV did?

Short the VIX future? Or sell the VIX calls?

I took advantage of the increased VIX and opened a number of RUT credit spreads.
Title: Re: Fun with VIX options
Post by: anisotropy on February 07, 2018, 10:36:11 AM
Let's have a moment of silence for these brave "investors", although if I remember correctly, Credit Suisse was the biggest bag holder. But ya, what can we use going forward that does what XIV did?

Short the VIX future? Or sell the VIX calls?


I was afraid so. Those are a tad too sophisticated, I am not particularly good at pricing. :(

Products like XIV made it soooo easy for noobs like me, just click buy/sell at the right time and money magically appears. Can we get it back after the end of this cycle please?
Title: Re: Fun with VIX options
Post by: jacquespluto on February 07, 2018, 11:46:02 AM
Let's have a moment of silence for these brave "investors", although if I remember correctly, Credit Suisse was the biggest bag holder. But ya, what can we use going forward that does what XIV did?

Short the VIX future? Or sell the VIX calls?



I was afraid so. Those are a tad too sophisticated, I am not particularly good at pricing. :(

Products like XIV made it soooo easy for noobs like me, just click buy/sell at the right time and money magically appears. Can we get it back after the end of this cycle please?

ZIV is still open.  Didn't blow up since it's an inverse of medium term volatility, not short term.  It is run by Credit Suisse.  Returns would be lower, but at least it held up through this mess.
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 07, 2018, 12:50:22 PM
My long-duration UVXY puts are down, but not badly. I'm looking at bid prices 5-7% lower than what I paid for positions entered in the last few months, and my positions held longer than that are still in the black between 22-60%.  The thing which hasn't changed is that UVXY is still set up to lose 80-90% a year from trading losses and it would take a lot of volatility changes to overcome that. Essentially, all that has happened is the postponement of their next 5:1 reverse split.

To me, this seems like a safer bet than going long ZIV or SVXY because it's a bet on poor long-term strategic execution by a fund that doesn't even try to preserve value longer than a day. I'm looking at pairs trading VIX and UVXY or SVXY and UVXY to isolate losses due to strategy from VIX noise.
Title: Re: Fun with VIX options
Post by: Stie Paie on February 07, 2018, 12:53:14 PM
Looks Like I landed at the right topic. On Monday 3:45 PM I saw SVXY at $80, down ~30% !  (SVXY is short vol ETF) which was down almost -30$.   So I thought it was relatively less risk to short SVXY PUTs at $40 ( half price). I sold 30 PUTs for Feb 9 Expiration at $3 a piece.  If SVXY stayed above $40 I would have gained  $9000. Who would have thought VIX would double 15 minutes later.

However, in 30 minutes after market close, SVXY tanked. It was halted. I lost $55,000 next day. I had this in my IRA and got wiped out clean. Play safe. e

Billions of $$$$$ lost on the Vol complex (WMDs)  this week.
Title: Re: Fun with VIX options
Post by: hodedofome on February 08, 2018, 02:42:48 PM
I have a running short on VXX that I try to keep about 10% of my trading account. I only add after spikes in VXX. Unfortunately I got a little impatient and aggressive over the past 6-8 months and added to my short in the past month. Now all the profit I've made in VXX over the past 1.5 years is gone and I'm about 10% underwater.

Hopefully the market correction isn't too bad and this all gets sorted out soon. Although the uptrend has been a little too strong lately, this correction has been extremely quick. For the S&P to be down 12% in just a week, from all-time highs, is pretty abnormal. You would think the correction would be over sooner than later, as I feel this has gone too far too fast.

If there was a news event, like some sort of crisis in the world, you could understand. This feels more like 1987, where there were market forces too far on one side that created this event. If we're like 1987, then the big plunge was basically the bottom.
Title: Re: Fun with VIX options
Post by: hodedofome on February 08, 2018, 03:24:59 PM
Also note, EXIV is still trading and is 'only' down 42% for the year.

The volatility crisis is much more a U.S. thing than a European thing.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 08, 2018, 04:22:36 PM
Down 8.26% in long UVXY put trade so far.
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 08, 2018, 07:25:43 PM
Down 8.26% in long UVXY put trade so far.
My thoughts are that this is a trade which does not warrant stop limits. That loss could potentially be made up for in a couple weeks.
Title: Re: Fun with VIX options
Post by: talltexan on February 09, 2018, 07:04:20 AM
We all came into this trade knowing that a total wipeout was possible. FV was very open about that.

This is why I've tried to limit the amount in it to the amount I'll receive in dividends over the course of a year.
Title: Re: Fun with VIX options
Post by: starguru on February 09, 2018, 09:58:33 AM
Down 8.26% in long UVXY put trade so far.
I’m down 40% on my Jan 2019 $6 puts, according to fidelity.

With the VIX and uvxy higher does the strategy change at all.  Is it worth it to hold longer into the money?  Seems like there is more intrinsic value to be had.


Sent from my iPhone using Tapatalk
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 09, 2018, 10:15:43 AM
Down 8.26% in long UVXY put trade so far.
I’m down 40% on my Jan 2019 $6 puts, according to fidelity.

With the VIX and uvxy higher does the strategy change at all.  Is it worth it to hold longer into the money?  Seems like there is more intrinsic value to be had.


Sent from my iPhone using Tapatalk

I've had to hold several strikes into the money after a ^VIX spike put me underwater to exit with a profit.  The key is holding the long dated options so time is on your side.  As of this morning, I am down 7.11%.  Hardly a catastrophic loss.
Title: Re: Fun with VIX options
Post by: hodedofome on February 09, 2018, 11:08:30 AM
S&P 500 going on it's worst weekly loss since September of 2008. Wow.

Hopefully we're just gonna re-test the overnight low from the futures this week then head back higher. We'll see.

So, in thinking about a strategy like FV (or mine) where you're betting on long-term decay in the ETF, what would it look like with a repeat of the late 90s? From 1995 to 2000 you had the VIX moving steadily higher. I'm wondering if the futures contango would have been reversed during that time and instead of a headwind in VXX/UVXY you'd have a tailwind.

Without past futures data back then we don't know for sure, but it's worth thinking about. Wondering if there should be a filter in our strategy to include persistent backwardation should that exist someday in the future.

Title: Re: Fun with VIX options
Post by: starguru on February 09, 2018, 12:53:10 PM
Down 8.26% in long UVXY put trade so far.
I’m down 40% on my Jan 2019 $6 puts, according to fidelity.

With the VIX and uvxy higher does the strategy change at all.  Is it worth it to hold longer into the money?  Seems like there is more intrinsic value to be had.


Sent from my iPhone using Tapatalk

I've had to hold several strikes into the money after a ^VIX spike put me underwater to exit with a profit.  The key is holding the long dated options so time is on your side.  As of this morning, I am down 7.11%.  Hardly a catastrophic loss.

Would doubling down be a bad idea?  I'm only using .25% of my portfolio for this.  Seems like there is incredible opportunity if UVXY returns to its normal decay?
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 09, 2018, 01:58:13 PM
Down 8.26% in long UVXY put trade so far.
I’m down 40% on my Jan 2019 $6 puts, according to fidelity.

With the VIX and uvxy higher does the strategy change at all.  Is it worth it to hold longer into the money?  Seems like there is more intrinsic value to be had.


Sent from my iPhone using Tapatalk

I've had to hold several strikes into the money after a ^VIX spike put me underwater to exit with a profit.  The key is holding the long dated options so time is on your side.  As of this morning, I am down 7.11%.  Hardly a catastrophic loss.

Would doubling down be a bad idea?  I'm only using .25% of my portfolio for this.  Seems like there is incredible opportunity if UVXY returns to its normal decay?

Maybe.  I wouldn't try it.  The thing is the volatility component of pricing is "high" right now.  You are going to pay a dear price for your puts.  If volatility reverts to mean (almost everything in finance does eventually), you are going lose that part of the premium.  It is an almost sure bet you'd still  make money by holding "long enough" but you are likely to have a period where the new puts are 'dead money' for a number of months as that spike in the pricing fades along with price of the underlying after the correction ends.  If I get a chance to exit this trade at break even next week, I'll take it and wait for about UVXY 15 pricing before getting back in.  This is what I have done in the past and it worked out pretty well.

0.25%...big spender!   Hah just kidding.  I started out microscopically small like you and increased my allocation over time as I got comfortable.  Ten percent of my portfolio is my limit though.  Don't think I'll ever go higher.
Title: Re: Fun with VIX options
Post by: starguru on February 09, 2018, 02:19:26 PM
Down 8.26% in long UVXY put trade so far.
I’m down 40% on my Jan 2019 $6 puts, according to fidelity.

With the VIX and uvxy higher does the strategy change at all.  Is it worth it to hold longer into the money?  Seems like there is more intrinsic value to be had.


Sent from my iPhone using Tapatalk

I've had to hold several strikes into the money after a ^VIX spike put me underwater to exit with a profit.  The key is holding the long dated options so time is on your side.  As of this morning, I am down 7.11%.  Hardly a catastrophic loss.

Would doubling down be a bad idea?  I'm only using .25% of my portfolio for this.  Seems like there is incredible opportunity if UVXY returns to its normal decay?

Maybe.  I wouldn't try it.  The thing is the volatility component of pricing is "high" right now.  You are going to pay a dear price for your puts.  If volatility reverts to mean (almost everything in finance does eventually), you are going lose that part of the premium.  It is an almost sure bet you'd still  make money by holding "long enough" but you are likely to have a period where the new puts are 'dead money' for a number of months as that spike in the pricing fades along with price of the underlying after the correction ends.  If I get a chance to exit this trade at break even next week, I'll take it and wait for about UVXY 15 pricing before getting back in.  This is what I have done in the past and it worked out pretty well.

0.25%...big spender!   Hah just kidding.  I started out microscopically small like you and increased my allocation over time as I got comfortable.  Ten percent of my portfolio is my limit though.  Don't think I'll ever go higher.

How would you be able to break even next week, assuming UVXY does not fall to where it was before this spike? 

.25% is still $5k :).  Wasn’t comfortable risking more. But this experience is actually good to have.  We’ll all get some experience on what a spike feels like.  In the grand scheme of spikes, I wonder how common this kind of thing is. 


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Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 09, 2018, 02:41:27 PM

How would you be able to break even next week, assuming UVXY does not fall to where it was before this spike? 

.25% is still $5k :).  Wasn’t comfortable risking more. But this experience is actually good to have.  We’ll all get some experience on what a spike feels like.  In the grand scheme of spikes, I wonder how common this kind of thing is. 


Sent from my iPhone using Tapatalk

A couple days ago, my puts were just 1 penny underwater.  If the volatility premium gets high enough, it could happen.  I've actually sold into vol spikes because my puts temporarily showed a fat profit even though the underlying was moving the "wrong" direction. 
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 09, 2018, 02:41:54 PM
Did everyone see this on bloomberg?

https://www.bloomberg.com/news/articles/2018-02-09/vix-surge-hands-8-600-profit-to-a-tiny-hedge-fund-in-colorado?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo (https://www.bloomberg.com/news/articles/2018-02-09/vix-surge-hands-8-600-profit-to-a-tiny-hedge-fund-in-colorado?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo)
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 09, 2018, 02:52:59 PM
UVXY has historically fallen fastest right after a big spike (and typically those last a couple weeks). Then you see a return to long term trendlines.

However, as FV points out, option prices are sky high right now across the board. So buying more puts to capture this hoped-for decline would be expensive.

If I had to make a bet right now and it had to be on UVXY, I might consider a very long duration synthetic short (sell a call at $X, buy a put at $X). You could in theory enter this trade with very little capital because the call pays for the put. Then, a few months or a year post-correction, when UVXY is back to its old self, you're doing quite well. It's also a time decay neutral strategy. I personally don't have the courage to do this trade, because the potential loss is infinite and I don't like the idea of managing margin calls during my day job. Spending a few extra bucks to buy another call at a relatively high UVXY price would mitigate that risk.

Another way to leverage an anticipated future decline in UVXY without paying for high implied volatility would be to buy a put in UVXY and sell a put in its opposite (and trading partner) SVXY. I can't even calculate the leverage, but it's roughly time neutral and IV neutral. Again, it would take guts of steel.

If you're not interested in such bet-the-farm-on-a-return-of-normalacy strategies, it's probably best to either hold-and-watch or adjust your strike prices. I.e. my $5 strikes have a much lower delta than they used to, so on Monday I might swap them for 18s or 20s to reset my risk to what I originally had in mind while volatility is still supporting the prices of the lower strikes. Or I might cash out and rebuy those same options in a couple weeks if IV has lowered their price.

Title: Re: Fun with VIX options
Post by: hodedofome on February 09, 2018, 06:44:41 PM
Did everyone see this on bloomberg?

https://www.bloomberg.com/news/articles/2018-02-09/vix-surge-hands-8-600-profit-to-a-tiny-hedge-fund-in-colorado?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo (https://www.bloomberg.com/news/articles/2018-02-09/vix-surge-hands-8-600-profit-to-a-tiny-hedge-fund-in-colorado?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo)

They made a crazy CAGR on that bet, but still isn’t going to affect their fund’s performance very much as $17 million for a $350 million fund is only 0.5%.

You hear about the Target employee? Apparently he didn’t blow up through all of this which is pretty amazing.
Title: Re: Fun with VIX options
Post by: hodedofome on February 09, 2018, 07:01:30 PM
https://www.zerohedge.com/news/2018-02-06/here-what-was-behind-largest-vix-buy-order-history

One nice thing about the stock market is that it’s closed on the weekends. Those crypto currency guys have to suffer through losses on the weekends too lol. They get no rest from their pain.
Title: Re: Fun with VIX options
Post by: thunderball on February 11, 2018, 06:35:30 AM
Target guy's 'stache was trimmed from $12MM to $3MM, but he's sticking to his strategy.   

https://www.marketwatch.com/story/former-target-manager-doubles-down-600000-bet-against-volatility-2018-02-07
Title: Re: Fun with VIX options
Post by: hodedofome on February 11, 2018, 07:56:27 AM
Target guy's 'stache was trimmed from $12MM to $3MM, but he's sticking to his strategy.   

https://www.marketwatch.com/story/former-target-manager-doubles-down-600000-bet-against-volatility-2018-02-07

It’s possible his strategy doesn’t work any longer. But usually, when there’s a washout like this, the strategy works pretty good for a while as everyone else has left the market.
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 11, 2018, 08:35:27 PM
The short VIX trade is like betting on both black and red on a roulette wheel, with the dealer betting on green. Yes, people have amassed fortunes parlaying their funds in trade after trade, but at some point despite its improbability, green will come around.

The UVXY put trade is like betting green doesn't come up two or three rolls in a row.
Title: Re: Fun with VIX options
Post by: hodedofome on February 12, 2018, 08:44:50 AM
The short VIX trade is like betting on both black and red on a roulette wheel, with the dealer betting on green. Yes, people have amassed fortunes parlaying their funds in trade after trade, but at some point despite its improbability, green will come around.

The UVXY put trade is like betting green doesn't come up two or three rolls in a row.

One has to remember that VXX increased in value 8x from 2007-2009, so your account better to be able to survive that. Or your strategy has to kick you out of the short at some point.
Title: Re: Fun with VIX options
Post by: hodedofome on February 12, 2018, 03:08:31 PM
We should keep this chart handy and find out where to get real time updates (Without buying a Bloomberg).

(https://www.zerohedge.com/sites/default/files/styles/inline_image_desktop/public/inline-images/negative%20vega.jpg?itok=_ohYCs9G)
Title: Re: Fun with VIX options
Post by: starguru on February 12, 2018, 03:18:21 PM
We should keep this chart handy and find out where to get real time updates (Without buying a Bloomberg).

(https://www.zerohedge.com/sites/default/files/styles/inline_image_desktop/public/inline-images/negative%20vega.jpg?itok=_ohYCs9G)
What am I looking at in that chart?


Sent from my iPhone using Tapatalk
Title: Re: Fun with VIX options
Post by: hodedofome on February 12, 2018, 03:34:41 PM
Sorry, the chart is from here: https://www.zerohedge.com/news/2018-02-06/here-what-was-behind-largest-vix-buy-order-history

I read somewhere else that volatility ETPs are the main market players in VIX futures now, so what happens with them moves the market in a big way. Typically they have been net long, but a few times they've been net short and it appears from the chart that seems to happen right before a big short squeeze. XIV did poorly the back half of 2014, as well as all through 2015. Perhaps this chart could help us lighten up our shorts (or perhaps buy some lottery ticket insurance) in the future when this happens again.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 12, 2018, 06:03:53 PM
http://www.businessinsider.com/vix-elephant-trader-returned-to-reap-gains-he-made-from-stock-chaos-2018-2 (http://www.businessinsider.com/vix-elephant-trader-returned-to-reap-gains-he-made-from-stock-chaos-2018-2)
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 13, 2018, 11:32:53 AM
VXX and UVXY are back to "normal" trading volumes today.  They have seen massively inflated volume up until now.   Possibly a sign the correction has stalled and we are back to normalcy in for the S&P.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 13, 2018, 01:00:51 PM
Also, this: https://finance.yahoo.com/m/c5bf9fbc-79b1-36f7-8340-1672f131d4d2/%E2%80%9850-cent%E2%80%99-vix-trade-just-paid.html (https://finance.yahoo.com/m/c5bf9fbc-79b1-36f7-8340-1672f131d4d2/%E2%80%9850-cent%E2%80%99-vix-trade-just-paid.html)
Title: Re: Fun with VIX options
Post by: RichMoose on February 13, 2018, 01:17:35 PM
Also, this: https://finance.yahoo.com/m/c5bf9fbc-79b1-36f7-8340-1672f131d4d2/%E2%80%9850-cent%E2%80%99-vix-trade-just-paid.html (https://finance.yahoo.com/m/c5bf9fbc-79b1-36f7-8340-1672f131d4d2/%E2%80%9850-cent%E2%80%99-vix-trade-just-paid.html)
Wow! Huge, huge trade. I must say I winced a little seeing that line go down to -$200,000,000. Whoever this trader is, they were clearly managing a lot of money!
Title: Re: Fun with VIX options
Post by: hodedofome on February 13, 2018, 03:00:44 PM
My VXX short is back in the black as of today.

I had to buy back 10% of my short late last week as I got a margin violation warning from Interactive Brokers. It's not that the trade went that far against me, but that I had taken out some money to renovate a new house I bought this fall. I figured we'd have another year or so before an ugly correction caused a large spike in VXX, and by then I'd have a large enough profit to not care. I was also anticipating paying that money back I borrowed from myself in the next year.

Needless to say, the spike happened sooner than anticipated, and without that extra cushion from the money I took out, I was running too far on the edge. I deposited some money early last week, but it didn't become active in my account till the weekend so I went ahead and covered a little bit of the short just so I wouldn't be forcefully liquidated the whole position by IB.

Lessons learned...
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 13, 2018, 04:30:19 PM
My VXX short is back in the black as of today.

I had to buy back 10% of my short late last week as I got a margin violation warning from Interactive Brokers. It's not that the trade went that far against me, but that I had taken out some money to renovate a new house I bought this fall. I figured we'd have another year or so before an ugly correction caused a large spike in VXX, and by then I'd have a large enough profit to not care. I was also anticipating paying that money back I borrowed from myself in the next year.

Needless to say, the spike happened sooner than anticipated, and without that extra cushion from the money I took out, I was running too far on the edge. I deposited some money early last week, but it didn't become active in my account till the weekend so I went ahead and covered a little bit of the short just so I wouldn't be forcefully liquidated the whole position by IB.

Lessons learned...

What is IB charging you to borrow shares?  The rate on UVXY is always punitive.
Title: Re: Fun with VIX options
Post by: hodedofome on February 13, 2018, 08:36:04 PM
UVXY is horrible, like 30%. VXX is reasonable I think 3-5% usually. Not bad when you consider the average return for VXX’s life is almost 60% per year.
Title: Re: Fun with VIX options
Post by: hodedofome on February 14, 2018, 10:28:58 AM
Stocks only up slightly so far today but volatility is getting destroyed. We're almost back into contango with the VIX futures so I'll probably reload the shares I covered in VXX last week. Hold time is hopefully forever...

With an outright VXX short, I can basically 'sell and hold' forever. This helps tremendously as far as taxes are concerned. As long as the VIX contango continues indefinitely, VXX should fall the rest of our lives. The main trick is managing the adds to the short as well as margin. I didn't manage my margin well this time, will learn my lesson for next time.

After hours update: alllllmost there for contango. Front month and 2nd month are breakeven now http://www.tradingvolatility.net/p/datasourceurldocs.html
Title: Re: Fun with VIX options
Post by: hgjjgkj on February 15, 2018, 08:02:59 AM
https://www.nasdaq.com/symbol/uvxy/option-chain/200117P00005000-uvxy-put

So when looking at the greeks, am I correct in saying that all the greeks are negative due to backwardation, and once contango comes back in Theta and Delta will switch signs?
Title: Re: Fun with VIX options
Post by: RichMoose on February 15, 2018, 08:45:24 AM
I wonder how many investors are going to pour back into this trade after getting burned so bad. I'm thinking quite a few...
Title: Re: Fun with VIX options
Post by: hodedofome on February 15, 2018, 09:59:18 AM
I wonder how many investors are going to pour back into this trade after getting burned so bad. I'm thinking quite a few...

The ones who didn't blow up their account might. The ones who did...it may be a while.

I'm thinking more than a few got into this trade through the money they had in a retirement account which would have been XIV. That ETF is no longer so they'll either need to use options on VXX/UVXY or just not participate.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 15, 2018, 10:04:13 AM
UVXY is horrible, like 30%. VXX is reasonable I think 3-5% usually. Not bad when you consider the average return for VXX’s life is almost 60% per year.

How long have you been short VXX and have you ever gotten a notice from IB that shares to borrow are scarce and you might be forced to buy back your borrowed shares if no inventory can be found overnight?  I used to get that notice frequently when shorting UVXY.  I finally closed rather than be exposed to forced closing.
Title: Re: Fun with VIX options
Post by: hodedofome on February 15, 2018, 10:15:11 AM
UVXY is horrible, like 30%. VXX is reasonable I think 3-5% usually. Not bad when you consider the average return for VXX’s life is almost 60% per year.

How long have you been short VXX and have you ever gotten a notice from IB that shares to borrow are scarce and you might be forced to buy back your borrowed shares if no inventory can be found overnight?  I used to get that notice frequently when shorting UVXY.  I finally closed rather than be exposed to forced closing.

I started shorting VXX maybe 1.5 years ago and I've remained short ever since. So far haven't had any forced closes. Seems to be millions of shares to borrow in VXX at any given time.
Title: Re: Fun with VIX options
Post by: RichMoose on February 15, 2018, 10:20:44 AM
I wonder how many investors are going to pour back into this trade after getting burned so bad. I'm thinking quite a few...

The ones who didn't blow up their account might. The ones who did...it may be a while.

I'm thinking more than a few got into this trade through the money they had in a retirement account which would have been XIV. That ETF is no longer so they'll either need to use options on VXX/UVXY or just not participate.
I think SVXY is still alive as well. Although the strategy is a bit different, ZIV is also a viable choice.
Title: Re: Fun with VIX options
Post by: hodedofome on February 15, 2018, 10:31:24 AM
You are correct, UVXY is still around if you enjoy losing 90% of your money overnight (which could take years and years to break even) and ZIV is still around but lacks the same punch.

If forced I'd choose ZIV for the long term.
Title: Re: Fun with VIX options
Post by: hodedofome on February 15, 2018, 10:49:02 AM
As far as I can tell, this trade will continue to work well as long as there is persistent contango in VIX futures. We can't have too much of the market on one side, otherwise we'll get more frequent short squeezes like this one. That'll eat into long term returns if this kind of thing happens too often.

As I see it:

1) Too many people piling into the trade

and/or

2) A generally rising volatility market (perhaps like the '90s)

Will cause this trade to not work as well (or at all) in the future.
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 15, 2018, 07:05:20 PM
As far as I can tell, this trade will continue to work well as long as there is persistent contango in VIX futures. We can't have too much of the market on one side, otherwise we'll get more frequent short squeezes like this one. That'll eat into long term returns if this kind of thing happens too often.

As I see it:

1) Too many people piling into the trade

and/or

2) A generally rising volatility market (perhaps like the '90s)

Will cause this trade to not work as well (or at all) in the future.

1) If too many people piled into short VIX futures positions, an equilibrium would have to develop where the prices of short positions increased until somebody was willing to trade long positions. This price would be based more on the auction dynamics than the thing the VIX is supposed to measure - S&P 500 options. This situation would set up an arbitrage opportunity for buyers of the contract to hold until delivery, right? Unless there's a mechanism where interest in VIX futures actually depresses the implied volatility of S&P options, I'm not sure this would affect anything. (Of course, any bubble that wipes out billions of dollars in investor positions will bleed over to equities, as we've learned.)

2) I would expect a generally rising or more volatile VIX to be reflected in the price of futures contracts, once expectations caught up. I think the risk premium (potential profitability of the trade) will persist or widen.

Overall this is an insurance market. The attractiveness of VIX futures - why people are willing to pay above spot price for futures - is its perceived usefulness as a hedge. More hurricanes = fatter premiums but a harder environment to consistently make money in. This trade with a more volatile VIX may mean making 25% nine times out of ten and losing 100% on the tenth.
Title: Re: Fun with VIX options
Post by: hodedofome on February 16, 2018, 12:21:03 PM
https://www.rcmalternatives.com/2018/02/the-chart-showing-why-this-vix-move-is-unique/

https://www.rcmalternatives.com/2018/02/a-volatility-trader-explains-what-happened/

https://www.rcmalternatives.com/2018/02/the-tail-has-wagged-the-dog/
Title: Re: Fun with VIX options
Post by: hodedofome on February 27, 2018, 09:32:52 AM
http://www.tradingvolatility.net/2018/02/new-pair-of-volatility-funds-to-hit.html

http://www.tradingvolatility.net/2018/02/svxy-and-uvxy-to-be-re-purposed-feb-28.html

Looks like VMIN, VMAX, UVXY and SVXY are going to get deleveraged a bit. I would imagine this would affect the UVXY put trade that is popular on this thread.
Title: Re: Fun with VIX options
Post by: ChpBstrd on February 27, 2018, 11:53:53 AM
Yes, my UVXY puts plummeted today - I suppose on expectations of reduced volatility in UVXY's price. The question is how they will implement the change, and will this ETF continue to bleed from contango at the rates they've done in the past. I imagine they will switch to trading futures contracts of different durations.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on February 27, 2018, 03:54:04 PM
I'm 35% underwater in the UVXY trade after the surprise announcement to cut leverage from 2x to 1.5x.
Title: Re: Fun with VIX options
Post by: aspiringnomad on February 27, 2018, 10:19:15 PM
https://www.bloomberg.com/news/articles/2018-02-27/proshares-slashes-leverage-on-surviving-volatility-products
Title: Re: Fun with VIX options
Post by: specialkayme on February 28, 2018, 12:34:10 PM
Perhaps someone on here can help me get back on track.

I started doing some paper trading in early January, tracking some of the strategies discussed here: http://www.naaim.org/wp-content/uploads/2013/10/00R_Easy-Volatility-Investing-+-Abstract-Tony-Cooper.pdf to see if I felt comfortable trading under one of them. Namely, I watched xivinvestment.com and charted 2x a week three different strategies:

1. A comparison of VIX and VXV, buying whichever is lower (if VIX, buy XIV, if VXV, buy VXX) - (essentially Strategy 3)
2. Same as #1, but use a 10 day moving average of both VIX and VXV (essentially Strategy 4)
3. Use a VIX:VXV ratio, where if the ratio goes 0.95 and under you buy XIV, and 1.05 and over you buy VXX (a modified strategy found here http://volatilitymadesimple.com/vix-mores-vixvxv-ratio/)

Since early January, VIX went crazy and XIV went defunct. Scottrade merged into TDAmeritrade and I can't find anything on my trading platform. I was able to replace XIV with SVXY (close enough). Yesterday I went to check the VIX:VXV ratio, and I can't pull a value for VXV. Yahoo Finance shows it at 0.00 (https://finance.yahoo.com/quote/%5EVXV/chart?p=%5EVXV#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%3D%3D) (https://finance.yahoo.com/quote/%5EVXV/chart?p=%5EVXV#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%3D%3D))). TD doesn't recognize it as even existing. XIVinvestment.com is calling for a trigger to buy SVXY (their replacement for XIV) today, but I can't check the ratio of the VIX:VXV to tell what caused the trigger. I'm VERY happy I was paper trading at this point.

Can anyone explain what's going on? And what I can use to replace VXV in the ratios relative to the article?
Title: Re: Fun with VIX options
Post by: hodedofome on March 02, 2018, 10:44:50 AM
I haven't checked lately but I've used vixcentral.com quite a bit in the past for lots of free data, you might try there.
Title: Re: Fun with VIX options
Post by: specialkayme on March 02, 2018, 12:14:34 PM
vixcentral.com is showing the current prices of VIX and VXV, and the ratio between them, but I'm not able to see the 10DMA of either from that site.

But more importantly, I don't understand why VXV's information is suddenly disappearing. TDAmeritrade isn't recognizing it as in existence. Neither is CBOE's website (which my understanding was VXV was CBOE's, right?). Yahoo finance isn't pulling it up either (although it says it exists, it says its value is $0.00, which is better than TD and CBOE which don't recognize it as existing). A few secondary websites are still able to pull quotes on it (https://www.barchart.com/stocks/quotes/$VXV and https://ycharts.com/indices/%5EVXV and http://vixcentral.com/ for example), but I don't understand how they are able to get price quotes on it when CBOE isn't even recognizing it as existing.

In theory I could replace VXV with VIX3M, which I believe is supposed to track the same thing, but my lack of understanding on what's going on here is a giant red flag to me (TD recognizes VIX3M exists, although it attempts to call it $VIX3M.X, but won't let me actually view it, and should I search for "$VIX3M.X" it tells me that doesn't exist . . . which may be an issue with TD or it may be an issue with my lack of experience in using TD).
Title: Re: Fun with VIX options
Post by: ChpBstrd on March 05, 2018, 11:48:17 AM
Different brokers and quote services (for whatever reason) require the use of different special characters to quote the same indexes. I suppose this software feature is to prevent the possibility that an index could be confused with a share.

My broker uses $VIX.X for "CBOE Volatility Index S&P500". The other symbol you provides appears to be limited to the 3 months-out contract.

You can trade options on the index above, and I've been trying to figure out a way to arbitrage the inefficiencies of funds like UVXY and SVXY against the index. E.g. buy a straddle on one and sell a straddle on the other. Let me know if you figure it out!
Title: Re: Fun with VIX options
Post by: specialkayme on March 05, 2018, 12:10:11 PM
My broker uses $VIX.X for "CBOE Volatility Index S&P500". The other symbol you provides appears to be limited to the 3 months-out contract.

The VIX is the measurement of volatility over the next 30 days.
VXV is the measurement of volatility over the next 3 months.
Using a ratio between the two allows me to measure how much contango or backwardation is occurring. At least, theoretically.

Yes, different quote services require the use of different special characters. For some reason, VIX is was easily found, but for some reason VXV was not easily found. I know it exists, because I searched it and found it 2 weeks ago. I just couldn't find it now.

After screwing around online for the better part of a week, I finally found the answer:

"the ticker symbol for the Cboe 3-Month Volatility Index was changed from “VXV” to “VIX3M”"

For some reason, Yahoo Finance isn't taking the transition very well. Under "^VXV" it's showing all the historical data on the Cboe 3-Month Volatility Index, but not the current price. Under ^VIX3M it's showing the current price, but not the historical data. TD appears to be even more confused.

"Le sigh"

At least I got my answer. Now trying to dig to find my information . . . .
Title: Re: Fun with VIX options
Post by: ChpBstrd on March 05, 2018, 07:31:28 PM
I'm 35% underwater in the UVXY trade after the surprise announcement to cut leverage from 2x to 1.5x.

The current backwardization situation has UVXY actually making money on its daily rolls.

https://www.barchart.com/futures/quotes/VI*0/all-futures?viewName=main (https://www.barchart.com/futures/quotes/VI*0/all-futures?viewName=main)

Given that this situation could persist for weeks, I wonder if I should take my losses on the UVXY puts now and re-enter the trade after observing a return to contango. I.e. without the main rationale for the trade in place, why keep it? I also wonder if the increased use of swaps has permanently reduced UVXY's speed of descent.

Then again, a burst of tariff activity by our "stable genius" has me wondering if the time has run out on a trade that was always a pro-cyclical bet on stability. VIX options might be less "fun" for a while.
Title: Re: Fun with VIX options
Post by: hodedofome on March 09, 2018, 10:20:51 AM
We're back in contango on the VIX futures.

http://www.tradingvolatility.net/p/datasourceurldocs.html
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on March 09, 2018, 12:24:16 PM
UVXY has seen some weird price action against the VXX but has recently seemed to settle into returning 1.5x of VXX daily.  If I hold my puts to expiry, I should come within spitting distance of break even.  I have a lot of "dead money" in that trade!
Title: Re: Fun with VIX options
Post by: ChpBstrd on March 12, 2018, 04:50:57 PM
We're back in contango on the VIX futures.

http://www.tradingvolatility.net/p/datasourceurldocs.html

Now we get to see how UVXY performs in a normal environment after their restructuring.
Title: Re: Fun with VIX options
Post by: hodedofome on March 20, 2018, 08:14:38 AM
VIX futures flip flopping between backwardation and contango every week now. The volatility of volatility continues...
Title: Re: Fun with VIX options
Post by: starguru on May 21, 2018, 01:19:07 PM
So is this trade now dead after the UVXY went to 1.5x?   My PuTs are still down about 80% even thought the UVXY price is only about 20% more than when I bought them.


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Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on May 21, 2018, 03:52:23 PM
So is this trade now dead after the UVXY went to 1.5x?   My PuTs are still down about 80% even thought the UVXY price is only about 20% more than when I bought them.


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I am holding 76 of the 6 strike 17JAN2020 expiry puts.  I purchased at 4.35 and they currently sit at 2.55.  That is an unrealized loss of 13,756, which is the main driver of my portfolio so far this year (still down 3,418 ytd.)  I expect around the time the underlying gets down to the 6 strike, they will be close to breakeven.  That is just a spitball estimate based on what I see the Greeks doing at the moment.  I will sell either way at 6 and sit out a month to avoid the wash sale if necessary.  I will also be evaluating whether to take a tax loss harvest in late December on this trade if we are not close to 6 by the time.  That could go either way depending on where I stand versus collecting Obamacare credit.

I think the trade still works so long as you have an entry price that is based on 1.5 leverage.  Having an entry that is based on 2.0 and needed to sell based on 1.5 is a killer and has left me with more than a year's worth of 'dead money'. 

What to do I think largely depends on your tax implications.  Do you want recovery in the current period or the next one for tax purposes?  At some point you probably have to take the hit if you bought when leverage was 2x...
Title: Re: Fun with VIX options
Post by: ChpBstrd on May 21, 2018, 08:52:24 PM
So is this trade now dead after the UVXY went to 1.5x?   My PuTs are still down about 80% even thought the UVXY price is only about 20% more than when I bought them.


Sent from my iPhone using Tapatalk

The 1.5x leverage has somewhat stabilized UVXY, but the options pricing should simply adjust to the slightly lower volatility. Maybe instead of buying puts $10 OTM you now sell them at $7 OTM.

As for me, the past 6 months has demonstrated what a loose cannon the Trump administration is, and how betting on low volatility is no safe bet at all in this environment. Rising consumer debt, interest rates, and oil are other reasons not to bet on volatility staying low. So for me, it seems like there was a season for this trade and that season has probably passed. I only own a couple $6 puts and they have a limit order that was almost hit today.
Title: Re: Fun with VIX options
Post by: starguru on May 22, 2018, 07:19:24 AM
Yeah I have the Jan 2019 $6 PuTs and have the feeling I’ll lose it all.  Not sure if I should sell and take the significant loss or just ride it out.  There is still months.  No tax implications as this is in an IRA.


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Title: Re: Fun with VIX options
Post by: talltexan on May 22, 2018, 02:11:06 PM
I had a habit of dividing my money into two contracts always. The thought was that--in the short term--one could get wiped out--but the other would stay alive and keep me going.

My June options are basically a cup of coffee this stage. My September options are down about 85% from where I bought, but they're enough that I could roll them to something later. With the June ones getting wiped out, it's probably best to roll them to two different times to keep this same approach going.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on June 06, 2018, 03:29:13 PM
Since February, I have been shorting VXX.  I'm up to 728 shares with proceeds of 29,488.  Unrealized gains sit at 5,988.  It is costing me about 100 a month in borrowing fees.  Anyone else in this trade?
Title: Re: Fun with VIX options
Post by: thunderball on June 06, 2018, 04:15:02 PM
Since February, I have been shorting VXX.  I'm up to 728 shares with proceeds of 29,488.  Unrealized gains sit at 5,988.  It is costing me about 100 a month in borrowing fees.  Anyone else in this trade?

No, but looking at the chart, I wish I were!  Nicely done.
Title: Re: Fun with VIX options
Post by: eudaimonia on June 06, 2018, 05:07:34 PM
I haven't been short continuously since February. I was actually long VXX going into the huge vol spike and then went to cash until beginning of May when the /VX curve and Skew became more normalized. Currently, short VXX via a synthetic June 15 combo of short calls and long puts. 12 of these combos (since May 5th) and up about $10k.
Title: Re: Fun with VIX options
Post by: talltexan on June 07, 2018, 08:25:51 AM
I'm sad to admit I didn't have the guts to put more into this trade. My June options are cooked. My September options have doubled in the last month, but I didn't put more in at the low-point. Staying with this trade requires fortitude.
Title: Re: Fun with VIX options
Post by: ChpBstrd on June 07, 2018, 02:29:11 PM
I've decided the low-vol bet is not for me during the Trump administration. Dude is setting little fires everywhere - and at market peaks! Tariffs? Really?

Given the near certainty of problems, I'm beginning to understand the appeal of 2020 UVXY long calls, although I can think of many cheaper lottery tickets.
Title: Re: Fun with VIX options
Post by: hodedofome on June 08, 2018, 01:38:50 PM
Since February, I have been shorting VXX.  I'm up to 728 shares with proceeds of 29,488.  Unrealized gains sit at 5,988.  It is costing me about 100 a month in borrowing fees.  Anyone else in this trade?

I've been short a few years now. I did cover a bit during the spike, as I was getting concerned about margin, but I'm still in.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on June 08, 2018, 05:57:54 PM
Since February, I have been shorting VXX.  I'm up to 728 shares with proceeds of 29,488.  Unrealized gains sit at 5,988.  It is costing me about 100 a month in borrowing fees.  Anyone else in this trade?

I've been short a few years now. I did cover a bit during the spike, as I was getting concerned about margin, but I'm still in.

Have you ever been forced out due to broker inability to borrow shares?
Title: Re: Fun with VIX options
Post by: hodedofome on June 11, 2018, 09:39:05 AM
Since February, I have been shorting VXX.  I'm up to 728 shares with proceeds of 29,488.  Unrealized gains sit at 5,988.  It is costing me about 100 a month in borrowing fees.  Anyone else in this trade?

I've been short a few years now. I did cover a bit during the spike, as I was getting concerned about margin, but I'm still in.

Have you ever been forced out due to broker inability to borrow shares?

I've never been forced out of short VXX, even after the huge spike this year.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on June 12, 2018, 01:59:52 PM
I closed my 6 strike puts today after an unlikely to be filled limit order cleared the market.  I booked a 13k+ short term capital loss.  That probably gets me qualified for the maximum ACA subsidy again this year so it isn't all bad.  I'm sitting out the trade for a month (wash sale rule) and then getting back in with a 5% notional exposure to UVXY as a synthetic short.  With the underlying 1.5x leverage, my net exposure from the short call will be 7.5%.  The early year volatility event caused UVXY to roughly double so I set my exposure at level that will top out my exposure between 15 an 20%. 

I'm letting my VXX direct short wind down.  The trade "works" but the hard to borrow fee is eating into me at about 100 dollars a month even during the current low vol environment.  I'd rather be synthetic and I'd rather play the 1.5 leverage.  I'm not buying to close, I'm just letting the current shares decay to zero.  IB doesn't allow fractional shares so I'll naturally exit the trade a little bit at a time as the result of multiple reverse splits.
Title: Re: Fun with VIX options
Post by: starguru on June 25, 2018, 02:09:03 PM
I wonder, being down about 85% on this trade, with with 6 months to go, if it makes sense to initiate a position in the underlying directly, as sort of insurance. 

1.  If underlying spikes, I could come out ahead or at least seriously mitigate any loss on the PUTS (depending on how much I invest in the underlying)
2.  If the underlying bounces around in this 10-16 range for that time Ill lose my PUTS and stay roughly the same on the long position.  A lot depends on the exact details of the trade.
3.  If the underlying drops my PUTS could become profitable or make up a lot of the ground they lost, and I would suffer a loss in the long position. 

Does this make sense or am I taking nonsense.  With only 6 months to go and things looky iffy vis-a-vis trade wars and whatnot, what to do?  I could also just let my PUTS expire worthless or get out now with an 85% loss....
Title: Re: Fun with VIX options
Post by: ILikeDividends on June 25, 2018, 04:54:58 PM
I wonder, being down about 85% on this trade, with with 6 months to go, if it makes sense to initiate a position in the underlying directly, as sort of insurance. 

In a word, no, it doesn't make sense.  Insurance is something you buy before the catastrophe.  You can't insure against something after the fact.

Ask yourself this: if you didn't have a put position now, would a long position in the underlying look attractive to you?  The answer to that question should inform your decision.

As for your current position, whether to take your lumps now, or risk the remaining 15% hoping for a recovery within 6 months, is really the only rational decision to be made.  Trying to retro-fit a hedge here, in hopes of recovering the 85%, at this late stage in the game, smacks of doubling down after a string of lost hands of Black Jack.

Simply put, evaluate initiating a new trade on its own merits, independent of your existing position.

Buying a bear put spread (rather than just buying a put outright), when you originally opened this position, would have been a way to hedge (by reducing the cost to enter the position).  But it is too late to do that now.  Legging in to a spread now would only hedge the remaining 15%.  And it would virtually guarantee that you'd never recover the lost 85%.  What would be the point of doing that?
Title: Re: Fun with VIX options
Post by: starguru on June 26, 2018, 07:02:24 AM
I wonder, being down about 85% on this trade, with with 6 months to go, if it makes sense to initiate a position in the underlying directly, as sort of insurance. 

In a word, no, it doesn't make sense.  Insurance is something you buy before the catastrophe.  You can't insure against something after the fact.

Ask yourself this: if you didn't have a put position now, would a long position in the underlying look attractive to you?  The answer to that question should inform your decision.

As for your current position, whether to take your lumps now, or risk the remaining 15% hoping for a recovery within 6 months, is really the only rational decision to be made.  Trying to retro-fit a hedge here, in hopes of recovering the 85%, at this late stage in the game, smacks of doubling down after a string of lost hands of Black Jack.

Simply put, evaluate initiating a new trade on its own merits, independent of your existing position.

Buying a bear put spread (rather than just buying a put outright), when you originally opened this position, would have been a way to hedge (by reducing the cost to enter the position).  But it is too late to do that now.  Legging in to a spread now would only hedge the remaining 15%.  And it would virtually guarantee that you'd never recover the lost 85%.  What would be the point of doing that?

Thanks for the reply.  Its funny you mentioning blackjack, because I thought it was analogous as well.  The thing is insurance can be a good choice in black jack.  Its a question of expected value.  How to do the calculations?

Also, would UVXY be a good investment right now?  There are many ways to see volatility spiking in the near term with all uncertainty Trump injects into the world. 
Title: Re: Fun with VIX options
Post by: ILikeDividends on June 26, 2018, 04:18:55 PM
I wonder, being down about 85% on this trade, with with 6 months to go, if it makes sense to initiate a position in the underlying directly, as sort of insurance. 

In a word, no, it doesn't make sense.  Insurance is something you buy before the catastrophe.  You can't insure against something after the fact.

Ask yourself this: if you didn't have a put position now, would a long position in the underlying look attractive to you?  The answer to that question should inform your decision.

As for your current position, whether to take your lumps now, or risk the remaining 15% hoping for a recovery within 6 months, is really the only rational decision to be made.  Trying to retro-fit a hedge here, in hopes of recovering the 85%, at this late stage in the game, smacks of doubling down after a string of lost hands of Black Jack.

Simply put, evaluate initiating a new trade on its own merits, independent of your existing position.

Buying a bear put spread (rather than just buying a put outright), when you originally opened this position, would have been a way to hedge (by reducing the cost to enter the position).  But it is too late to do that now.  Legging in to a spread now would only hedge the remaining 15%.  And it would virtually guarantee that you'd never recover the lost 85%.  What would be the point of doing that?

Thanks for the reply.  Its funny you mentioning blackjack, because I thought it was analogous as well.  The thing is insurance can be a good choice in black jack.  Its a question of expected value.  How to do the calculations?

In a 52 card deck there are 16 cards that will make a dealer's ace into blackjack (which is where your insurance side-bet wins and gets paid 2 for 1).  That leaves 36 cards in the deck that will turn your insurance side-bet into a loss.  Basically, that's 36 to 16 against winning the side bet; i.e., 2.25 to 1 against (divide 36 by 16).

Since the house only pays you 2 for 1 if you win, the house's "invisible" cut is 0.25 points. A true-odds payout would have paid $2.25 for every $1 of insurance bet. But they couldn't afford to build those big beautiful casinos by offering true odds payouts.  ;)

So if you insure a $200 bet for the max of $100 in insurance, you supposedly win if the dealer flips a blackjack. But if you don't also have a blackjack, you lose your $200 bet and win $200 on your insurance bet, for a break-even outcome overall.  But the house still wins in that they are going to keep $25 by paying you less than true odds when you win.

It's kind of like a game of coin flipping for a dollar if you lose, and only paying you 98 cents when you win.  The casino doesn't fund a new hotel wing based on any one such flip of the coin.  They win by players flipping that same coin hundreds of thousands of times.

Of course, in blackjack, you know your own cards, and you can usually see other players cards as well.  You can discount the dealer's down card with that information.  If the table is already rich in 10s and face cards, the odds that the dealer has blackjack go down, which would make insurance a bad bet; strictly by the numbers.  Conversely, if the table is rich in little cards, insurance is almost mandatory if you have a decent hand.  And it would be downright reckless not to insure your own blackjack, if you have one.

If you've been counting cards all along, you can use the additional information from previous hands to inform your decision to bet or not.  If those 16 cards have already been dealt out, you know with certainty that the dealer doesn't have blackjack.  That is the extreme scenario where insuring even a blackjack becomes an obviously bad bet.  You'd still net an even money win on your blackjack, but you could have made 1.5 to 1 on it without using insurance.

These days, though, it's hard to find a casino that deals single-deck blackjack, or that deals out the entire shoe before reshuffling. :(

Quote
Also, would UVXY be a good investment right now?  There are many ways to see volatility spiking in the near term with all uncertainty Trump injects into the world.

I would never go long one of these leveraged products simply because they are not designed for long term holding.  They are designed for traders, and I've proven more times than I care to admit that I have no aptitude for trading.
Title: Re: Fun with VIX options
Post by: ChpBstrd on June 26, 2018, 07:07:48 PM
The difference between blackjack odds and volatility odds is that one is a mathematical probability and the other operates as a chaotic system. Attempts to apply probabilistic thinking to volatility may not yield the expected outcomes.

I am intrigued by the idea of going short UVXY and long the VIX using options. Do the computers that price options factor in the trading friction, expense ratio, and contango losses inherent in UVXY, or could I harvest those factors essentially risk free? I set up a paper trade last week to see how this setup would behave, doing a bear call spread on 1000 shares of UVXY and a bull put spread on 1500 units of VIX. Performance has been flat so far.
Title: Re: Fun with VIX options
Post by: ILikeDividends on June 26, 2018, 07:51:50 PM
The difference between blackjack odds and volatility odds is that one is a mathematical probability and the other operates as a chaotic system. Attempts to apply probabilistic thinking to volatility may not yield the expected outcomes.

I am intrigued by the idea of going short UVXY and long the VIX using options. Do the computers that price options factor in the trading friction, expense ratio, and contango losses inherent in UVXY, or could I harvest those factors essentially risk free? I set up a paper trade last week to see how this setup would behave, doing a bear call spread on 1000 shares of UVXY and a bull put spread on 1500 units of VIX. Performance has been flat so far.

Interesting.  Those are both credit spreads.  Your risk is the difference between the strikes of each spread, minus the credit you received for each.  And then divide the total risk by 2, because only one spread can be a loser at expiration (this assumes the width of both spreads is the same).  Actually, it would be MAX(risk of either spread), since you have different unit counts.

Your credit goes up the wider the spreads are, but your risk typically goes up, by increasing the width of the spread, more than the credit does.

I'm assuming those are extremely narrow spreads; e.g., one strike wide?
In other words, have you collected enough total premium from both spreads to cover the loss of a move completely through the short strike of the spread having the most risk?

Edit to add: A perfect storm of whip-saw and early assignments could actually cause you to lose on both spreads.  That would seem exceedingly rare, but I'm not sure dividing the total risk by 2 is entirely appropriate.  Hmmm.

Edit to add II: If you put this structure entirely on UVXY (or on VIX), except for the different unit counts on each wing, it would be an Iron Condor.  So I guess it's sort of a lopsided Iron Condor. ;)  What advantages do you see by splitting the structure across two different symbols?  I know one is leveraged and the other isn't.  Presumably that explains the lopsided structure, but how is that an advantage?

A standard Iron Condor is typically employed when the underlying is perceived to have low volatility.  Since UVXY exaggerates volatility by design, I would think that VIX would be a superior vehicle for the whole structure. (?)

Finally, your lopsided iron condor, across the two tickers, is 1.5 times heavier on the VIX wing than on the UVXY wing.  Which, on the surface, appears to be an attempt to normalize risk against the 1.5x leverage of UVXY.  So it seems like a lot of work to achieve what a standard Iron Condor already does; which is to establish a credit position with limited risk, and having a directionless bias.

Over time I would expect the only difference in performance (lopsided vs standard) to be accounted for by the minor increase in the fees paid to put on two trades (assuming there is an increase) versus one trade.  That would depend on your choice of broker more than anything else.

The lopsided version would sometimes lose less, and sometimes lose more, depending on which wing gets busted by a market moving against you.  In a standard Iron Condor, either busted wing hurts equally badly when you lose, but the differences should average out to roughly the same pain over a series of bad trades using either structure.
Title: Re: Fun with VIX options
Post by: ChpBstrd on June 27, 2018, 07:10:34 PM
The difference between blackjack odds and volatility odds is that one is a mathematical probability and the other operates as a chaotic system. Attempts to apply probabilistic thinking to volatility may not yield the expected outcomes.

I am intrigued by the idea of going short UVXY and long the VIX using options. Do the computers that price options factor in the trading friction, expense ratio, and contango losses inherent in UVXY, or could I harvest those factors essentially risk free? I set up a paper trade last week to see how this setup would behave, doing a bear call spread on 1000 shares of UVXY and a bull put spread on 1500 units of VIX. Performance has been flat so far.

Interesting.  Those are both credit spreads.  Your risk is the difference between the strikes of each spread, minus the credit you received for each.  And then divide the total risk by 2, because only one spread can be a loser at expiration (this assumes the width of both spreads is the same).  Actually, it would be MAX(risk of either spread), since you have different unit counts.

Your credit goes up the wider the spreads are, but your risk typically goes up, by increasing the width of the spread, more than the credit does.

I'm assuming those are extremely narrow spreads; e.g., one strike wide?
In other words, have you collected enough total premium from both spreads to cover the loss of a move completely through the short strike of the spread having the most risk?

Edit to add: A perfect storm of whip-saw and early assignments could actually cause you to lose on both spreads.  That would seem exceedingly rare, but I'm not sure dividing the total risk by 2 is entirely appropriate.  Hmmm.

Edit to add II: If you put this structure entirely on UVXY (or on VIX), except for the different unit counts on each wing, it would be an Iron Condor.  So I guess it's sort of a lopsided Iron Condor. ;)  What advantages do you see by splitting the structure across two different symbols?  I know one is leveraged and the other isn't.  Presumably that explains the lopsided structure, but how is that an advantage?

A standard Iron Condor is typically employed when the underlying is perceived to have low volatility.  Since UVXY exaggerates volatility by design, I would think that VIX would be a superior vehicle for the whole structure. (?)

Finally, your lopsided iron condor, across the two tickers, is 1.5 times heavier on the VIX wing than on the UVXY wing.  Which, on the surface, appears to be an attempt to normalize risk against the 1.5x leverage of UVXY.  So it seems like a lot of work to achieve what a standard Iron Condor already does; which is to establish a credit position with limited risk, and having a directionless bias.

Over time I would expect the only difference in performance (lopsided vs standard) to be accounted for by the minor increase in the fees paid to put on two trades (assuming there is an increase) versus one trade.  That would depend on your choice of broker more than anything else.

The lopsided version would sometimes lose less, and sometimes lose more, depending on which wing gets busted by a market moving against you.  In a standard Iron Condor, either busted wing hurts equally badly when you lose, but the differences should average out to roughly the same pain over a series of bad trades using either structure.

I simulated buying $1 wide verticals at the money (at the time a couple weeks ago), buying the first OTM option and selling the first ITM option in each trade. The prices were:

UVXY Aug 17 2018 bear call spread
Sold 10 $8 calls for $3.18/share incl commissions
Bought 10 $9 calls for $2.61
----------
Net credit: 3180 - 2610 = $470

VIX Aug 22 2018 bull put spread
Bought 15 $12 puts for $0.55
Sold 15 $13 puts for $1.00
-------------
Net credit: 1500 - 825 = $675
--------------
Total credit: 470+675 = $1145

IMO this strategy looks more like the rarely discussed Box arbitration strategy, except with different ticker symbols. In the Box strategy, you trade a call spread and a put spread to risklessly arbitrage any gap in the price between the two.

Now, in theory I have $1k risk on the UVXY bear spread and another $1500 risk on the vix bull spread. However, I think the probability is very low that UVXY rallies or holds steady while the VIX sits still or declines. That's my losing big scenario. I know UVXY does not track VIX longer than 1 day, and that UVXY is a bet on backwardization in VIX futures, not 1.5 times VIX. However it seems nearly impossible that VIX would drop in absolute terms for a couple of months while the market remained in a state of backwardization. Thus, my risk seems logically a lot less than the full $2500.

I lose $1500 on my VIX bull spread if VIX falls below $12. In that low volatility scenario, UVXY has almost certainly fallen from where it was, the UVXY bear spread expires with both options worthless, and remember I still keep my $1145 premium received to offset said loss. Net loss: $355 plus one more commission.

If the UVXY bear spread loses its maximum of $1k, it is almost certainly because VIX went to the clouds and my VIX bull spread is now worthless. I pay off the loss from the $1145 premium received and keep the change. Net gain: $145 and thanks for saying/doing something stuipid, Trump!

One point of the experiment is to see if a 1X UVXY 1.5X VIX ratio box spread breaks even. If it does not, and the actual weightings should be something different, the arbitrage opportunity could be even greater or nonexistent. Good to know either way.

Another point is to explore exiting one of the spreads early at a cost less than the credit I received initially or rolling to a guaranteed profit position. We know when a spike is occurring and we know the spread prices will change at that time.

Why not use condors? I.e. a long condor in VIX and a short condor in UVXY? I guess my hypothesis is not that their implied volatility is understated/overstated compared to each other. It's that the two instruments are correlated in a way not reflected in options pricing models. UVXY can't generally rise while the VIX falls and vice versa. By placing a cross-bet, my credits are the sum of the probability-weighted value of each spread, but my amount at risk is logically less than the sum of both risks.


Title: Re: Fun with VIX options
Post by: ILikeDividends on June 28, 2018, 03:43:21 AM
Why not use condors? I.e. a long condor in VIX and a short condor in UVXY?

I was actually questioning why not just short an Iron Condor on VIX.  It has a very similar structure as your box spread has; a bull put spread paired with a bear call spread.  But placed all on the same underlying, rather than spanning two different underlying assets that are somewhat correlated (correlated in direction, anyway, not in magnitude).  As well, a Condor is equally balanced on both wings, where your box spread isn't.

But never mind that now. I understand more about what you're trying to do. You are looking for systemic inefficiencies in option pricing that might be exploitable. You posted words to that effect previously, but I couldn't quite grasp the means of going about doing that. Not that I've fully internalized the method even now, but I'm a lot closer.  Thanks for elaborating.  I would certainly be interested in reading any findings you care to post about your experiment.
Title: Re: Fun with VIX options
Post by: specialkayme on June 28, 2018, 07:18:51 AM
Thanks for elaborating.  I would certainly be interested in reading any findings you care to post about your experiment.

+1
Title: Re: Fun with VIX options
Post by: ChpBstrd on June 28, 2018, 09:08:54 AM
Why not use condors? I.e. a long condor in VIX and a short condor in UVXY?

I was actually questioning why not just short an Iron Condor on VIX.  It has a very similar structure as your box spread has; a bull put spread paired with a bear call spread.  But placed all on the same underlying, rather than spanning two different underlying assets that are somewhat correlated (correlated in direction, anyway, not in magnitude).  As well, a Condor is equally balanced on both wings, where your box spread isn't.

But never mind that now. I understand more about what you're trying to do. You are looking for systemic inefficiencies in option pricing that might be exploitable. You posted words to that effect previously, but I couldn't quite grasp the means of going about doing that. Not that I've fully internalized the method even now, but I'm a lot closer.  Thanks for elaborating.  I would certainly be interested in reading any findings you care to post about your experiment.
My bedtime reading is a finance textbook explaining the Black-Scholes options pricing model. My thoughts at the moment are "damn, that's a brutally efficient market, run by superfast computers playing a zero-sum math game that my dumb ass can barely comprehend." It's a strong deterrant from taking directional bets based on opinions/guesses inevitably influenced by financial media/social media and biases. The computers have been taking money from such people for a long time.

Correlated but independent assets are interesting because it is not clear whether the computers can simultaneously eliminate all arbitrage opportunities within a ticker symbol and also between correlated symbols. How would you program that? How would you calculate an option price that factors in the SD of the natural logrithm of every other correlated asset, neutralizing all arbitrage opportunities, without deviating from the probabilistic value of the original asset itself? My brokerage's software can do beta weighting, but we're still not teaching computers about the qualitative differences and similarities between things like UVXY and VIX. If humans have any advantage, it's in qualitative thinking or insider/client information.

One benefit of this box-ish strategy is that one might roll the winning spread into a sort of lopsided volatility condor, taking an additional net credit in the future based on whether volatility rises or falls. However, this would come at the cost of trading an almost risk-free arbitrage position to get an efficiently priced condor. I don't play chess, and I struggle a bit with such 4 dimensional strategic thinking.

The position is up $12 since a couple weeks ago. Yesterday it was down $40. Basically lumps in the bid-ask spreads. Time will tell if 1:1.5 is the risk neutral ratio.

Title: Re: Fun with VIX options
Post by: ILikeDividends on June 28, 2018, 07:13:52 PM

Correlated but independent assets are interesting because it is not clear whether the computers can simultaneously eliminate all arbitrage opportunities within a ticker symbol and also between correlated symbols. How would you program that?

I'll go out on a limb here and suppose they could employ a Monte Carlo method.  You might find this quite interesting:

https://en.wikipedia.org/wiki/Monte_Carlo_methods_in_finance

Most notably, this excerpt in the introduction seems to hit the nail on the head:

"The advantage of Monte Carlo methods over other techniques increases as the dimensions (sources of uncertainty) of the problem increase."

And this link discusses Monte Carlo specifically as applied to option pricing:

https://en.wikipedia.org/wiki/Monte_Carlo_methods_for_option_pricing

"In mathematical finance, a Monte Carlo option model uses Monte Carlo methods to calculate the value of an option with multiple sources of uncertainty or with complicated features."

Black-Scholes is far more computationally efficient than Monte Carlo (perhaps orders of magnitude more efficient), but there are many option pricing problems that cannot be solved by Black-Scholes. Monte Carlo is the big gorilla you call in to solve for those.

If you've got a standard, vanilla, run-of-the-mill option pricing problem to solve, Black-Scholes should probably still be the go-to tool to solve it.  Monte Carlo could solve it too, but that would be over-kill; kind of like killing a fly with a hand grenade.  How dead do you need that fly to be?  ;)

As computers get faster and faster, the downside of applying Monte Carlo becomes less and less important, and it can be more widely applied to solve problems that wouldn't have been practical to solve on older computers.

None of that proves whether UVXY and VIX do, in fact, take each other's features into account when solving for pricing, but the tools to do so would seem to be available.  The only real question is whether the inefficiencies you are looking for have or have not already been accounted for in the pricing models.

Title: Re: Fun with VIX options
Post by: ChpBstrd on July 01, 2018, 10:04:22 PM
Yes, Monte Carlo would be the way (I suspect a spreadsheet exercise could create similar function lines).

Question is: If B-S and Monte Carlo yielded two different prices for an option, which would you use? It seems as if the risk of mis-pricing an option is so bad you wouldn't want to deviate more than a penny or two from B-S. Otherwise, you are either never able to make a trade or you get taken advantage of by an arbitrageur using B-S. However, if a Monte Carlo simulation could persuade you that there are more gains to be had in a cross-asset trade like I'm describing, maybe you take that loss? It's kind of like a 2nd-order bid-ask spread.

Again I remind myself options are a zero net sum game. When an individual investor trots into the marketplace with a theory in hand, supercomputers with decades of experience usually take their money faster than a blackjack dealer playing with toddlers.

At the moment, my little trade simulation is up $43 - but it started up $40 due to the time between setting up each leg. That's a bid-ask blip in terms of these highly volatile options. $3 gain on top of a $1145 credit, or +0.26% in 10 days (roughly 9.5% annualized so far, but the sample is way too small to be conclusive). I saw at one point it was up $112, but that anomoly quickly disappeared.

If there is no arbitrage opportunity, that would be interesting too because then a pair of credit spreads like I'm trying here might offer a way to borrow large sums of money at close to the risk free rate - or at least the borrowing rates large funds have available.
Title: Re: Fun with VIX options
Post by: ILikeDividends on July 02, 2018, 02:25:05 AM

Question is: If B-S and Monte Carlo yielded two different prices for an option, which would you use? It seems as if the risk of mis-pricing an option is so bad you wouldn't want to deviate more than a penny or two from B-S. Otherwise, you are either never able to make a trade or you get taken advantage of by an arbitrageur using B-S.

I can't claim to know the subtle differences between BS and MC outcomes, beyond the likely possibility that MC probably takes longer (compute time) to resolve than BS does.  I would expect the differences (if any) in the computed results to be tiny fractions of a penny if the dimensions of the problem are the same, although, I have no empirical evidence to offer in support of that assumption.

If there are more problem dimensions than BS can handle, then I would expect MC to converge on a more accurate solution.  But that additional accuracy wouldn't, in and of itself, make MC a more viable solution.

To my way of looking at this, the most significant difference between applying a BS versus an MC solution would be defined by whatever the state of the art capabilities are in high performance computing hardware, as compared with the past. E.g., if MC computes a more accurate solution, but takes 5 seconds longer to do that than BS (or some combined heuristic), then could MC really be regarded as a practical (superior) solution in the context of an exchange trading tool?  I don't really know.

With the unrelenting advances in computing horsepower, I would expect, at some point, that MC will become more viable to apply in a wider area of problem spaces. But is the computational horsepower yet available to offer a practical solution for this problem by applying MC now?  I don't know.

Quote
If there is no arbitrage opportunity, that would be interesting too because then a pair of credit spreads like I'm trying here might offer a way to borrow large sums of money at close to the risk free rate - or at least the borrowing rates large funds have available.

I don't know that there would never be an arbitrage opportunity even if the options were accurately priced in real-time, regardless of the method used to price the options.  To suggest otherwise would be to suppose that the main goal of pricing options is to eliminate the possibility of arbitrage.

I tend to think that the primary goal would be to match supply with demand for a particular issue, but I'd have to work in CBOE to know for sure.  And I don't.  ;)

I do, however, tend to think that any arbitrage opportunities should rapidly correct in response to supply and demand imbalances W.R.T. any correlated issues. Opportunities created by supply and demand imbalances wouldn't be systematic; you'd have to be Jonny-on-the-spot with timing in order to exploit those kinds of imbalances.

I am definitely not a Jonny.  But I am certain that there are quite a lot of Jonnys out there. ;)

Update to add:  Some of the bigger "Jonnys" have supercomputers co-located and connected by fiber optics, or use microwave network technologies (which is faster than fiber optics), to feed market data to their trading systems much more rapidly than a typical armchair trader could ever hope to do over the internet. 

No matter how superior the armchair trader's system might seem, in theory, it suffers a distinct disadvantage in that the data it is using to base decisions on is already old by the time s/he gets it, and has likely already been acted on by someone having faster access to the information, faster computing hardware, and the ability to enter trades, bypassing a broker's system and any human interaction, directly into the exchange.

The race to exploit the information advantage using technology has been on ever since the invention of the telegraph.

The section on low-latency strategies in this article touches on that a little bit:

https://en.wikipedia.org/wiki/High-frequency_trading
Title: Re: Fun with VIX options
Post by: ILikeDividends on August 07, 2018, 06:26:02 PM
Today I established a position in 18 contracts of UVXY 01/17/2020 6.00 P; filled at $4.30.
For any who are still interested, after UVXY changed to 1.5x leveraged, UVXY finally hit an all time low today of $8.29.

Not surprisingly, I'm still down about 37% on the 2020 puts I bought last December, when UVXY was 2x leveraged.  I'm not sure how fast or far below the $6 strike it would need to fall in order for me to recover, but I've set a no-later-than deadline of December 19th, 2018, to take my lumps and exit, to prevent a short term capital loss turning into a long term capital loss.

It seems to me it's now a race between the now-muted value-destroying effects of daily re-balancing into contango versus the time decay of my already-crippled put options premium.

I might decide to exit earlier, but that's my deadline for staying in unless something extraordinary happens in the next few months to change my mind.

Best of luck to anyone who is still in this trade; I suspect we'll need a lot of that luck to recover enough just to break-even.
Title: Re: Fun with VIX options
Post by: talltexan on August 08, 2018, 07:10:46 AM
I saw that headline. I think my June strike price was $8, so the options wouldn't have ever gotten into the money anyway.

Just checking back, it now seems that I also had a September put at a strike of $7. Probably should have held that one past July 12, could have climbed back up out of the huge hole. It was down about 80% when I sold, and it had been down as much as 90%.
Title: Re: Fun with VIX options
Post by: ChpBstrd on August 08, 2018, 11:58:04 AM
Quote

I simulated buying $1 wide verticals at the money (at the time a couple weeks ago), buying the first OTM option and selling the first ITM option in each trade. The prices were:

UVXY Aug 17 2018 bear call spread
Sold 10 $8 calls for $3.18/share incl commissions
Bought 10 $9 calls for $2.61
----------
Net credit: 3180 - 2610 = $570*

VIX Aug 22 2018 bull put spread
Bought 15 $12 puts for $0.55
Sold 15 $13 puts for $1.00
-------------
Net credit: 1500 - 825 = $675
--------------
Total credit: 570+675 = $1245*


Just realized I forgot to give everyone an update!

Today's mid prices:

UVXY Aug 17 '18 bear call spread
     $8 calls @ 0.50 x -10 = -500
     $9 calls @ 0.25 x10 = 250
     -----------
     Net position: $-250 (a gain of $320 against the $570 credit received to enter the position)

VIX Aug 22 '18 bull put spread
     $12 puts @ 0.40 x 15 = 600
     $13 puts @ 1.03 x -15 = -1545
     --------------
     Net position: $-945 (a loss of $270 against the $675 credit received to enter the position.
--------
Total net: 320-270 =  .....$50 in 42 days before commissions.

That doesn't sound like much, but for a position that would require 1500+1000-1245=$1255 in net cash sidelined for margin, it works out to a (50/1255)*(365/42)=34.6% annualized return. Not bad for an arguably risk-free or at least arbitraged position!

Obviously commissions for at least 6 total trades (4 to enter + 2 ITM positions to close) would eat some of that margin for us retail investors, but YMMV depending on your broker and scale. TastyWorks.com for example is very cheap. I bet a person could squeak out a double-digit annualized return.

This result was obtained during typical bull market contango conditions, when simple long puts in UVXY would have done better, though at higher risk. I wonder how the position would have done in Feb-March 2018?

*corrected a math error from my June 7 post. The credit would have actually been $100 higher.
Title: Re: Fun with VIX options
Post by: pressure9pa on August 09, 2018, 08:43:59 AM
Hello Everyone,

I'm somewhat new around here (been lurking a couple of months), and last night I read this entire thread with historical charts of the VIX and UVXY in other windows waiting to see what the reaction would be with each event.  Made for about 90 minutes of really entertaining reading!  Anyway, even though it looks like the original strategy is dead (or on life support), I wanted to express my appreciation for those willing to share these kind of experiences and strategies. 
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on August 09, 2018, 08:50:56 AM
Hello Everyone,

I'm somewhat new around here (been lurking a couple of months), and last night I read this entire thread with historical charts of the VIX and UVXY in other windows waiting to see what the reaction would be with each event.  Made for about 90 minutes of really entertaining reading!  Anyway, even though it looks like the original strategy is dead (or on life support), I wanted to express my appreciation for those willing to share these kind of experiences and strategies.

I wouldn't say it's dead.  I still have 6.71% of my portfolio short VXX.  I am going to start using synthetic shorts of UVXY once the allocation falls below 5%.  That is, I targeted 7.5% for VXX and now that UVXY has stabilized, I am using the same exposure (5% * 1.5x leverage).
Title: Re: Fun with VIX options
Post by: ILikeDividends on August 09, 2018, 03:19:52 PM
Anyway, even though it looks like the original strategy is dead (or on life support) . . .
Likewise, I wouldn't say the strategy is dead, either.  Any position entered when UVXY was 2x leveraged (like mine), however, is now permanently impaired, and is definitely on life support. 

I liken the surprise change to 1.5x leverage to buying a 10 Lb sack of potatoes at Costco, only to have the guy checking receipts at the door remove 2.5 Lbs from the bag without giving a partial refund.  Effectively, the options I paid full price for have been swapped for options of lesser value.

That change to leverage was a one time event.  Any short bias trades put on after that will not start out with such a crippling handicap, and should still enjoy the value-destroying features of UVXY; just at a muted pace with lower leverage.

Once I clean up the mess that my current position has become, I will look to put on another position after observing how UVXY behaves over the remaining months of this year.  If my position recovers meaningfully before mid-December, such that the value of harvesting the short term loss approaches a trivial amount, I might very well ride it out beyond the end of the year.

Edit to add:
I am going to start using synthetic shorts of UVXY once the allocation falls below 5%.
It seems this strategy could have very likely side-stepped the carnage wrought by the change in UVXY leverage.  I can appreciate the appeal of a synthetic short; however, the risk is not defined, as it is with a long put. So if or when I take another bite of this apple, I'll probably stick with buying long-dated puts.

If the coming months do not indicate that the new UVXY can still destroy value faster than LEAP premium decays over time, then I'll probably stay out of this strategy for good.

My December deadline aligns nicely with the opening of the 2021 puts in November. If I choose to, I can then take my lumps and roll my crippled 2020 options out to a fresh position having more breathing room in the calendar, slower time decay, and suffering no preexisting traumatic injuries.  All things remaining equal, the 2021 puts should cost significantly less than what I paid for the 2020 puts twelve months earlier.
Title: Re: Fun with VIX options
Post by: Financial.Velociraptor on August 10, 2018, 12:18:57 PM
I am going to start using synthetic shorts of UVXY once the allocation falls below 5%.
It seems this strategy could have very likely side-stepped the carnage wrought by the change in UVXY leverage.  I can appreciate the appeal of a synthetic short; however, the risk is not defined, as it is with a long put. So if or when I take another bite of this apple, I'll probably stick with buying long-dated puts.

That is my thinking.  Be hedged against another reduction in leverage.  The long put exposure treated me well for years then suddenly cost 13k+ with the leverage adjustment.  I switched to a direct short of VXX (a previous experiment with short UVXY proved shares are frequently hard to borrow at exactly the wrong time).  I set a pain threshold of 7.5% (that is, if vol went on a tear and my short tripled in value, my exposure would be 22.5% of portfolio [acceptable to me]).  It has worked well but I want the leverage factor back.  Thus, 5% exposure on UVXY synthetic to avoid being forced out of the trade at the worst moment by unavailability of shares to borrow.  I'm waffling a little. By the time I'm at 5% exposure, the yield curve may be inverting.  I don't think I'll add exposure in that scenario.
Title: Re: Fun with VIX options
Post by: thunderball on August 10, 2018, 04:19:34 PM

As a short VXX or long Put alternative, how about using an at-the-money debit spread on UVXY?  Granted, you're paying a sizable premium:

BUY +1 VERTICAL UVXY 100 19 OCT 18 10/8 PUT @1.41 LMT

Making only a max of $0.59....  but there's minimal theta decay since it's ATM, which you wouldn't have unless you went way ITM.

Thoughts appreciated!
Title: Re: Fun with VIX options
Post by: ILikeDividends on August 10, 2018, 05:00:27 PM

As a short VXX or long Put alternative, how about using an at-the-money debit spread on UVXY?  Granted, you're paying a sizable premium:

BUY +1 VERTICAL UVXY 100 19 OCT 18 10/8 PUT @1.41 LMT

Making only a max of $0.59....  but there's minimal theta decay since it's ATM, which you wouldn't have unless you went way ITM.

Thoughts appreciated!

I posited the same structure with a similar time frame on another thread about nine months ago.  The problem was that I was modeling the position using after hours quotes, as it appears you have also done.

Look at your trade again on Monday, during market hours.  You might find, as I did, that after hours quotes on UVXY options are wildly unrepresentative of what your actual pricing is likely to be.  When I checked pricing during market hours, I found that the reward part of the risk/reward ratio shrunk dramatically, offset by a corresponding increase in risk.

Caveat: UVXY was 2x leveraged when I did that.  I haven't revisited the question since UVXY adjusted to 1.5x, but I still regard after hours quotes as mostly fiction.

An argument for sticking with a simple long-dated put is that theta decay on a 2 year LEAP is extremely slow in its early half-life; hardly significant if your intention is to hold the position no longer than a few months.  That expected holding period, of course, might no longer be a practical expectation, given the adjustment in UVXY leverage.

An argument against an ATM spread is that the further into the money your long put goes, the less influence volatility exerts on the pricing of the option.  Financial Velociraptor has documented, up-thread, instances where he was able to exit profitably on days where the market actually went against him and volatility spiked. 

Volatility will always exert more influence on your short put than on your long put, once you start moving into the money; which could pinch your potential to exit the spread with maximum profitability.  ATM or near ATM, at least as far as I understand it, is the exit point, not the entry point, for this strategy.  A key to exploiting this effect, at least when using long puts, is to always make sure you enter the position OOTM, and during periods of low volatility.

Indeed, my long OOTM UVXY puts actually show a 4% GAIN for today, when UVXY moved against me by 7%.  Then again, that's an after hours quote.  So we can agree to dismiss that specific quote as mostly nonsense.  ;)
Title: Re: Fun with VIX options
Post by: thunderball on August 11, 2018, 04:33:01 PM

@ILikeDividends thanks for your reply.  You are correct in that was an after hours quote.  I'll take a peek again Monday to see if the same potential profit exists.  A directional LEAP likely makes more sense. 

Title: Re: Fun with VIX options
Post by: thunderball on August 16, 2018, 07:42:35 AM

Indeed, normal trading hours show little premium indeed from an ATM spread:

BUY +1 VERTICAL UVXY 100 21 SEP 18 11/9 PUT @1.53 LMT

$0.47 does not seem worthwhile.