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VIX and Volatility General Discussion


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VIX and Volatility General Discussion

 
DameDeHasard
Paris, France
 
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ajk1 View Post
Just came across this great thread ! Thanks for that!
One clarification please
"VIX options are not the ViX, they are essentially VIX options on futures. This is an unfortunate nomenclature confusion that has brought many a person to grief. The VIX is an index, not a product, and is also known as Cash or Spot."
What do you mean by VIX options on are on futures ? There is such thing as VIX options on the cash/index right ?

You get paid out on a cash value of the VIX settlement at expiration, so the options are priced based on the expected value of the VIX at the expiration date. That value is represented by the VIX futures. The practical importance is that when spot vix falls or rallies, the forward price reacts much less and the options move less too. Partly that's driven by liquidity and partly by the fact that mean reversion is being priced into the curve.

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 suko 
Kyoto, Japan
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UVXY is now just over 6.

I looked around for a reverse split announcement but there is none. Did I miss something?

Usually they reverse split UVXY before it gets to 5, either 4 to 1 or 5 to 1. Last time was Sept. 2018, post-Volpocalypse.

Practically speaking, if you have long dated UVXY options you may want to trade them in. The bid/ask spreads tend to widen out on the split adjusted option series.

VXX is just under 12, and I expect they will also be announcing a reverse split, too. The last one was in August of 2017, pre-Volpocalypse. As a VXX watcher, incredible to think how long it took VXX to breach the $25 zone conclusively and then get to where it is now under 12.


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 suko 
Kyoto, Japan
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Futures contango effects the speed of decay of VXX. 9% is pretty decent this far out in the cycle, and also note that with 28 days to go, M1 is pricing almost 3 points above spot. Normally you would expect this to be less than 2 points, so that premium is very juicy.

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 shodson 
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I'm still short 3,500 shares of UVXY from 11.36, I have an April 10/20 bull call spread as a hedge, also waiting/wondering when a new reverse split will be announced. I'm not worried about my call spread, it's pretty much worthless already at this point.


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 Erikie 
Ede Netherlands
 
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Hello, thanks for sharing! can you share a bit about the total price being short vxx in combination being long the callspread. How do you use riskmanagement in this combination?
Thanks!

 
 
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 suko 
Kyoto, Japan
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shodson View Post
I'm still short 3,500 shares of UVXY from 11.36, I have an April 10/20 bull call spread as a hedge, also waiting/wondering when a new reverse split will be announced. I'm not worried about my call spread, it's pretty much worthless already at this point.


Thanks for sharing this trade with us in detail.

Do you do this kind of trade on a regular basis?


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 suko 
Kyoto, Japan
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Erikie View Post
Hello, thanks for sharing! can you share a bit about the total price being short vxx in combination being long the callspread. How do you use riskmanagement in this combination?
Thanks!

I am not quite able to parse your question (which was not directed to me anyway) but if you are an Elite member you can see an example of risk management with long/short vol options trades in my elite journal starting here (maybe this addresses it).

Especially this post but maybe some earlier ones a couple pages back:



Ideally the way it works is you end up selling out your short vol for a small profit or a scratch and owning the long vol to expiry. Get your juice for free.

Owning the UVXY stock like in this case, you would just peel off enough shares to pay for your hedge at 21 days out then re-establish the hedge at 45 or 60 days out and so forth. At some point the long vol will come in.

You can also do this with VXX or UVXY strangles.

Of else VXX puts hedged with wide VIX call spreads similar to the UVXY spread above.


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 Erikie 
Ede Netherlands
 
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Thanks I will have a look. Sorry my question was not clear. I asked Shodson what he paid for the callspread.


suko View Post
I am not quite able to parse your question (which was not directed to me anyway) but if you are an Elite member you can see an example of risk management with long/short vol options trades in my elite journal starting here (maybe this addresses it).

Especially this post but maybe some earlier ones a couple pages back:



Ideally the way it works is you end up selling out your short vol for a small profit or a scratch and owning the long vol to expiry. Get your juice for free.

Owning the UVXY stock like in this case, you would just peel off enough shares to pay for your hedge at 21 days out then re-establish the hedge at 45 or 60 days out and so forth. At some point the long vol will come in.

You can also do this with VXX or UVXY strangles.

Of else VXX puts hedged with wide VIX call spreads similar to the UVXY spread above.


 
 
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 shodson 
OC, California, USA
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Erikie View Post
Thanks I will have a look. Sorry my question was not clear. I asked Shodson what he paid for the callspread.

@Erikie - I bought the call spread for 1.00

@suko - Yes, I am frequently short UVXY. I also use stops, but pretty far out, like 2x my entry price so I give it a lot of room for temporary spikes/tantrums, that's why I have the call spread, to buffer me between the price and my 2x stop. I got hurt pretty badly during the Volpocalypse of Feb 2018. Up until then, I had been hedging over and over again, spending money for hedges that I didn't need, then I stopped hedging, and then it happened. Just hedge, and be happy with what you get. UVXY leverage is now 1.5x instead of what it was before, 2x, so that makes it safer too. If you manage the risk it's the next best thing to an ATM machine in the markets. I want to put on a new hedge, closer to the current price, but I don't want to be stuck with a call spread when it reverse-splits so I'm exposed up to 10.0 for now. The calls expire next week so I should decide by then.

R.I.P. XIV - https://www.forbes.com/sites/jimcollins/2018/02/06/it-works-until-it-doesnt-work-the-death-of-xiv-shows-the-folly-of-gaming-market-volatility/

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 Erikie 
Ede Netherlands
 
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I remember 5th of Februar 2018 like it was yesterday. Liquidiation of the XIV. Is there such a risk with VXX ?
I am a professional trader and mainly vix


shodson View Post
@Erikie - I bought the call spread for 1.00

@suko - Yes, I am frequently short UVXY. I also use stops, but pretty far out, like 2x my entry price so I give it a lot of room for temporary spikes/tantrums, that's why I have the call spread, to buffer me between the price and my 2x stop. I got hurt pretty badly during the Volpocalypse of Feb 2018. Up until then, I had been hedging over and over again, spending money for hedges that I didn't need, then I stopped hedging, and then it happened. Just hedge, and be happy with what you get. UVXY leverage is now 1.5x instead of what it was before, 2x, so that makes it safer too. If you manage the risk it's the next best thing to an ATM machine in the markets. I want to put on a new hedge, closer to the current price, but I don't want to be stuck with a call spread when it reverse-splits so I'm exposed up to 10.0 for now. The calls expire next week so I should decide by then.

R.I.P. XIV - https://www.forbes.com/sites/jimcollins/2018/02/06/it-works-until-it-doesnt-work-the-death-of-xiv-shows-the-folly-of-gaming-market-volatility/



 



Last Updated on May 27, 2021


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