1. Realized volatility is stock movement as recorded, also known as Historical volatility -- it's what most people consider to be "volatility" on the TV news. It's not a product or part of a product. It's a statistical record of the past.
2. Implied volatility is (represented by the VIX) is derived from options prices -- it's a mathematical product and represents human sentiment. It's a probabilistic look at the future.
3. VERY IMPORTANT: 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.
4. VIX futures are based on SPX options, not on the VIX index directly. They trade in their own pit at the CBOE and are their own little world. Normally the futures have a price premium over the Spot or Cash VIX.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
The following 6 users say Thank You to suko for this post:
Mark Sebastian: "20 day realized volatility is 95% .95% I am pretty
certain this is the highest 20 day realized vol ever, certainly in
the last 90 years....We think realized volatility almost has to come
in this week. 95% simply is unsustainable. Now that we have gotten
down to 2500, I expect sell offs to be softer than rallies, as there
is some fomo fear on rallies right now. Everyone wants to know
when to buy. "
"I am thinking this next presents a lower VIX and a choppy S&P
500...This means there is little edge in buying OR selling VIX
Futures or ETPs."
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
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"VIX futures have already taken quite a spike and are still up between 50 on the front end and 30 on the backend. If things get worse (as in 2008 worse or Black Monday 1987 worse) then SVXY and ZIV could still take 30-50% hits. But looking at the long term, there are going to be enormous gains on short vol ETPs as VIX recedes later in 2020. You may have seen a tweet I sent today about ZIV doubling over the next 2 years. It could go down 50% first but I still expect that to be a good trade."
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
Fear is always overstated, and if you think this situation should calm down some in the next 90 days, then there is a ton of premium that has to come out of the VIX futures. This will affect both VIX and VXX optoins. VXX is usually more liquid, so,
Doing a little investigation of the VXX options chain, the highest OI I could find anywhere was on the JUN 18 put, at 60K pricing now around .35. There are a number of other far out of the money strikes with relatively large OI for JUN.
Those 18 put guys are the optimists.
None of the other months till JAN have much OI. Jan has some similar OI on the 15 and 16 strikes.
The 16 put guys are guarded optimists?
VXX is currently 46. I'd say there is a decent chance of seeing some gains on those puts bought for 25 cents.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
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Normally you expect to see a range between 80 and 120.
So, at the current 150, VIX options are still very pricey.
VVIX is a derivation of a derivation so technical analysis is not to be taken seriously, so this trend line is not a direct indicator of price action, just for general reference.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
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Finally they have identified the Fiddy Cent VIX trader, after years of mystery.
Leading into the crisis in March, they had 325 K of the March 24 VIX options, all purchased at 50 cents. These were sold before expiry at around $46.
Ruffer Capital:
"Insuring against deep trouble in the very near future was
relatively cheap, because there were many people who were happy to
enter into the other side of the trade they saw the risk of a
tremendous fall in the near future as vanishingly unlikely. Our
preferred insurance was in volatility when markets are racked with
fear, they become more volatile, and this is measurable through an
index called the VIX. We had a tranche of options which expired,
worthless, ten days before the action began. But the next tranche
were winners multiplying in four weeks by around 100 times."
