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VIX and Volatility General Discussion


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VIX and Volatility General Discussion

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  #1 (permalink)
 suko 
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General discussion of anything and everything about volatility, real, implied or forward.

VIX, SPIKES, TYViX, GVZ, OIV, etc. incl. RealVol

Also risk management products such as VIX-related ETFs, VIX futures and options, and of course SPX and SPY options.

Let's go deeper into this.


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  #3 (permalink)
 Zwaen 
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Good topic this. I personally like the VXX product. It is however important to understand how this etf is constructed. Things to keep in mind are:
  • Contango/backwardation effect
  • Rolling composition of the upcoming 2 monthly futures

You have to keep in mind these situations:
  • VIX in Contango and rising VIX
  • VIX in Contango and dropping VIX
  • VIX in Backwardation and rising VIX
  • VIX in Backwardation and dropping VIX

Some info:
https://sixfigureinvesting.com/2013/04/how-does-vxx-work/

- I believe Ronin Capital blew up on this -

One of my worst enemies are my own false assumptions
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  #4 (permalink)
 suko 
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Here are a couple of volatility related resources:

VIX is a CBOE product with variations worldwide across asset classes:

Vix-Index

For VIX, all roads lead to the VIX term structure.

VIX Term Structure

Trading Volatility has some more granular data

Trading Volatility: VIX Futures Data

Realized volatility data from RealVol

https://realvol.com/volatilitydata2.shtml


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  #5 (permalink)
 suko 
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Some important distinctions to be made up front:

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.


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  #6 (permalink)
 suko 
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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 ETP’s."


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  #7 (permalink)
 suko 
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Jay Wolberg from Trading Volatility:

"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."


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  #8 (permalink)
 suko 
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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.


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  #9 (permalink)
 suko 
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VVIX has an almost perfect trend line down from the peak in March.

This is par for the course, it usually trends like this after a spike.

VVIX indicates the price of VIX options.

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.


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  #10 (permalink)
 suko 
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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."

https://www.zerohedge.com/markets/vix-whale-known-50-cent-speaks-our-catastrophe-insurance-did-absolutely-everything-we


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 SMCJB 
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The Fiddy Cent stories and rumors have peaked my curiosity for quite a while. Thanks for linking I hadn't heard about the reveal.

Here's something this thread (is that just you? ~ You Can Lead a Horse To Water, But You Can’t Make It Drink) may find interesting.

More than You ever Wanted to Know about Volatility Swaps
https://www.semanticscholar.org/paper/More-than-You-ever-Wanted-to-Know-about-Volatility-Demeterfi-Derman/3d9cfbe5ff32fd805f79c85b1e48fa9ac84e9128

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  #12 (permalink)
 suko 
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Volatility swaps are way too complicated for the likes of me.

There are other traders than Fiddy Cent that made big VIX trades, but usually these are multileg things like 1x2 backspreads that are hard for the financial press to grasp. A high concept idea like buying VIX calls at the 50 cent price point makes a good story.

You could say it was a kind of crude hedging strategy compared to what others do in the space, because traders usually want to find a way to finance those long VIX calls with short calls or VIX puts.

Calls like that decay fast and are very expensive over the long run.

A smarter approach is VIX call spreads 10 strikes wide, better use of capital than straight calls.


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  #13 (permalink)
 suko 
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VVIX is down to 134, so the smooth downward trend continues. Pretty soon it will be back within its normal range, between 80 and 120

Spot VIX and front month VIX futures are still at the 40 handle -- still in outer space, but down by half from what they were.

Here is one way of categorizing VIX that makes it easier to grasp:

Zone 1 -- green -- 8 to 13 complacency, mode of VIX is around 12
Zone 2 -- yellow -- 14 to 19 elevated tension, average of VIX in this zone
Zone 3 -- orange -- 19 to 22 market turmoil
Zone 4 -- red -- 23 and up, catastrophe

VIX will keep falling until it gets into the 20 handle in the next couple months.

I expect it will stay in 20 handle for some time.

For premium sellers this is heaven.


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 SMCJB 
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So you think the equity market bottom is in?

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 suko 
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As for the market bottom being in, I think it's more likely that the VIX top is in than the SPX bottom.

VIX could keep gradually reverting to its mean even if SPX gradually tests the bottom over the next months.

Also, take a look at that smooth trendline on VVIX, now down to 136.

Pretty soon VVIX will be back at the top of the normal range, which is the 120 handle.

Trading ideas, as long as there is so much backwardation, VXX faces a stiff headwind so it may be more efficient to sell VIX call spreads of some sort.


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 suko 
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On the other hand, backtests show that long VIX call spreads are the way to go for VIX upside in a choppy backwardated market like this.

6 weeks out, short strike near the money long strike 10 strikes out.

If the market keeps chopping around in a range now between 2800 and 2300, which is my assumption near term, then one can use short VIX call spreads to finance your long VIX call spreads in a pairs trade.


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 SMCJB 
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I think equities set new lows. While VIX may not set new highs, I'd be surprised if VIX doesn't move higher though at those lows.

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 suko 
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You could be right.

It's always smart to have a few VIX call spreads in your back pocket because it does tend to spike.

An example of what I am talking about would to buy the MAY VIX 42.5 52.5 call spread for 1.80 -- if you think we will be revisiting these levels.

The next leg down may take longer to play out than May.


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 suko 
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Election Risk Goose Egg

One interesting side note, if you look at the VIX term structure, the bump around election time has reappeared. Before the crash, that was a serious looking goose egg. Then when the whole structure lifted up, it disappeared.

Now it's coming back. At some point it will be tradable. August?


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 suko 
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Looking at May VIX, there's a lot of OI on the 35 through 29 strikes.

One could put together a 35 28 put spread with not such a bad RR, within the expected move.


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 suko 
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I think most of the guys on this board or looking at realized vol rather than implied vol (VIX).

Not interested in options so this implied vol discussion seems like voodoo.

For most people that's the case. VIX is output from a mysterious mathematical box and it moves in mysterious ways.

This is one of the reasons why SPX puts are much more popular than VIX calls. The suits that manage the funds that use options to hedge are not comfortable with that mysterious VIX box.

So why pay attention to VIX at all?

Well, if you make it a habit of checking the VIX term structure at vixcentral.com as part of your premarket routine, you get a very important leading indicator of what could be about to happen.

To put it another way, your stock charts and your realized vol are statistics. History.

Options prices and VIX are probability, they are sentiment that look to the future. What smart people are betting will happen.

When realized volatility and implied volatility get way out of line, that's an opportunity, and it represents a chance for you as a trader.

What I have seen in the five or so years I have been following VIX and the futures term structure is that usually it gives you a heads up when the market is about to make a big move. Which may not be apparent from looking at just realized vol.

Certainly that has been the case over the last five years. Each time there was a big move downward, it was foreshadowed by the term structure flattening out and then moving to backwardation. This time I called it in late January and again in early February.

And each time it moved into backwardation, you had a brief period of hours or days to get into position, when you could still buy OTM VIX calls for fitty cents or ATM UVXY or VXX calls for a buck. Back in February those same calls were 8 cents.

These trades return 5x or 10x or in this recent case 100x. Trades of a lifetime.



PROTIP: do not look at VIX in isolation. Wrap it in the context of the VIX futures term structure, and then you have a potent forecasting indicator. Learn to read that term structure. It tells you what the sharp money sees happening at various points out into the future.

When you see a bump in the term structure, find out what that means. When it flattens out, pay attention, and when it goes into backwardation, take risk off.

Part of your premarket routine.




[*NOTE: this discussion deliberately leaves out TVIX, which does not have options and which went from $36 to over $1000 during March. It's a tainted product.]


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  #22 (permalink)
 suko 
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Question glommed from another thread:


NewBird View Post
Right now, the VIX futures are still in backwardation (see attached screenshot). Does it mean VXX still have chances to go up a lot? It's dropping a lot during the past two weeks? Is there any hope to go back to the price two weeks ago?

vix


Answer: VXX usually goes down during contango and up during backwardation.

The last time there was a huge vol spike like this was in Feb 2018, and VXX went over 50. After that it kept chopping around for a long time, back to 50 then down to 25 level. It took around a year for it to get below the ATL of around 25.

The same scenario could play out again this time around. Note that the current 50 level is the same 50 level from 2018, that is, VXX has not done a reverse split since 2017 -- extremely unusual for VXX to go so long without a split.

Still too much Vega in VXX options, so you may find more edge in SPY or SPX options at the moment.


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 suko 
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On the subject of backwardation and VXX, with -12% backwardation at this moment why isn't VXX going up?

OK, let's review a couple important structural facts about VXX:

1. APR VIX rolls at the monthly VIX options settlement on Wednesday morning. At the moment of settlement, spot VIX and M1 futures must coincide exactly, that is how the product is designed. (while settlement is early Wednesday morning, end of trading is Tuesday).

2. Currently VXX holds 0% of the APR VIX futures (check the current holdings of VXX here: Trading Volatility: VIX Futures Data) so that means all the weight is on the MAY futures. In other words, that -12% APR contango is meaningless. What you should be looking at is the -3% contango for MAY.

That is, they proportion of M1 to M2 futures held in the VXX fund changes on a daily basis, and we are currently at an extreme point in the cycle for that ratio.

In short 3% of backwardation is not much of a tailwind, and the rest of the curve is pretty flat now, so the vol products aren't moving much.

PROTIP: Never, ever, ever hold VIX options into settlement. Absolutely be sure to close out your position on the Tuesday before. Very bad people sometimes do very bad things at VIX settlement, so you want be out of there.


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 guidoisot 
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Hi @suko, thank you for starting this thread.

I am following the attached call spread on the vix which I have sketched yesterday on this pnl simulator:

My Options Strategy ? Options Strategy Builder & Analyzer Online ? OptionCreator.com

(I hope the link works ok, I attach also an image of the chart)

I would be grateful to hear your opinion/critics to this trade.
Especially what type of adjustment to implement in case there is a spike high in vix well in advance of its expiry.


Since I am a resident of Italy, I do not have access to TOS so I found this simulator !

Does anyone know know of a better (free) simulator that this optioncreator, for example one which accepts Interactive Brokers options data feed?
I guess also IB must have somewhere an option simulator for analysing multileg options spreads pnl profiles, but IB - TWS features are so many that I find almost impossible to find where its simulator could possibly be (... I am not referring to the too simple right click performance profile, but just to a decent and simple data-fed option strategy builder and pnl simulator).

Thank you.

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 suko 
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TBH if you are not really expert with your platform yet, I would advise trying a something simpler. You can analyse this trade using TOS in the "Analyze Tab".

There's enough juice in VIX for short call spreads, as an example of a simpler trade, provided you should hedge it somehow.

Right at this moment there is perhaps less edge in the vol products, and I advise you to take a look at your strategy using SPY or SPX. More edge there in terms of vol and liquidity.

Also, as for your directional assumption, pay attention to VVIX, it's just entered the 120 handle. I think there a good chance that M1 futures could be back in the 20 handle next week, and in that case you would want to rethink the assumption on your trade.


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 suko 
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Crude vol, OVX, crazy.

/CLK0



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 SMCJB 
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Yeah I'm long Put spreads and they are not going up in value (as much as you think) because I'm now negative vega and the vol increase is eating my delta profits!

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 suko 
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I am seeking my crude vol selling puts in tankers:

DHT, EURN, LPG, STNG, TNK

I like EURN esp.


See this:

https://www.realvision.com/opportunity-in-the-covid-crude-oil-contango


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 SMCJB 
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Literally weeks ahead of you on this one!


Trailer Guy View Post
So do you have an opinion on the tanker stocks as big winners theory being pushed on the internet?


SMCJB View Post
Did some work on this a few weeks ago. For the oil storage play your only interested in ULCCs/VLCCs, so your looking for companies that have the highest concentration of VLCCs in the their fleets that were not already booked out on time charters. DHT and EURN are good candidates followed by FRO and STNG. They all had big run ups when CL went to $20 but in the last week have given up all their gains and are surprisingly trading near long term lows again. I know crude has rallied but May/Jul is still trading $8. If your bold they all have options as well which all have implied volatilities over 100%

Disclosure: I have long delta positions in all 4 names mentioned.


SMCJB View Post
My perspective was purely that with VLCC rates double medium term averages the pure VLCC plays should have much better earnings in the next 3-6 months. I agree once the surplus has gone theres nothing to support high rates.


SMCJB View Post
Well I got this one right!!!

Since posting date (Apr 9th)
  • DHT 6.52 -> 7.86 +20.6%
  • EURN 10.32 -> 10.97 +6.3%
  • FRO 8.78 -> 9.91 +12.9%
  • STNG 17.41 -> 21.28 +22.2%
    [8]Average +15.5%
vs
  • SPY 278.2 -> 284 +2.1%

Disclosure: Still have long delta positions in 3 of the 4 names mentioned.

Those prices were this morning. All up even more now!

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 suko 
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It seems there will be plenty of time to lather, rinse, repeat on this trade.


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 suko 
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Liquidity in all four of those names is very decent, thanks.


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 SMCJB 
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Interesting question. Right now you can't charter a VLCC for floating storage. They are all gone. So in theory this should all be priced in. Doesn't matter if K/M goes to -$100 tankers are not going to make much more money than they are already. Question is does the heard realize that yet.

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 Trailer Guy 
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SMCJB View Post
Interesting question. Right now you can't charter a VLCC for floating storage. They are all gone. So in theory this should all be priced in. Doesn't matter if K/M goes to -$100 tankers are not going to make much more money than they are already. Question is does the heard realize that yet.

Wow, that was fast. Middle of last week an article which I did not see until Friday was quoting one of the ship tracking paid services saying 60 plus of the 800 plus were chartered for storage. Then I read about the Singapore oil trader going belly up and their shipping company going down also with about 16 VLCCs supposedly steaming back home to be tied up by the courts.

So these tanker stocks are going for roughly 50 percent of asset values. Frontline said their fleet break even was somewhere around 29,000 a day (I am hazy on that) and they are getting 125,000 to 150,000 a day up to 200,00, so yes, I can live with that for a quarter or two. Especially as this is the weakest season for tankers, but history is no longer a guide.

I said a couple of weeks ago the big threats were OPEC making a meaningful deal and the owners chartering a bunch of new builds. Well OPEC did what they always do so take that off the list. I am assuming China will offer very attractive financing because I am assuming credit markets are shutting down around the world.But I think a lot of new builds is a threat for a future year. I am ignoring the virus as there is zero sign that it will go away in 60 days and everything will return to what it was.

Has the heard figured this out? One thing I learned about tankers, they do not trade logically. I am positive a lot of people link tanker profits to oil prices directly and will walk away from you at a virtual cock tale party. If these stocks post back to back quarters of record earnings and have payouts exceeding 10%, well then the guys with a lot of gravitas sitting in high back leather chairs will be telling everyone to buy. So if it goes as it has in the past income oriented buyers late to the party who will post ugly as the Tsunami of new builds kills the market like it always does. But that is 2022 not 2020.

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 SMCJB 
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Trailer Guy View Post
Wow, that was fast. Middle of last week an article which I did not see until Friday was quoting one of the ship tracking paid services saying 60 plus of the 800 plus were chartered for storage. Then I read about the Singapore oil trader going belly up and their shipping company going down also with about 16 VLCCs supposedly steaming back home to be tied up by the courts.

So these tanker stocks are going for roughly 50 percent of asset values. Frontline said their fleet break even was somewhere around 29,000 a day (I am hazy on that) and they are getting 125,000 to 150,000 a day up to 200,00, so yes, I can live with that for a quarter or two. Especially as this is the weakest season for tankers, but history is no longer a guide.

I said a couple of weeks ago the big threats were OPEC making a meaningful deal and the owners chartering a bunch of new builds. Well OPEC did what they always do so take that off the list. I am assuming China will offer very attractive financing because I am assuming credit markets are shutting down around the world.But I think a lot of new builds is a threat for a future year. I am ignoring the virus as there is zero sign that it will go away in 60 days and everything will return to what it was.

Has the heard figured this out? One thing I learned about tankers, they do not trade logically. I am positive a lot of people link tanker profits to oil prices directly and will walk away from you at a virtual cock tale party. If these stocks post back to back quarters of record earnings and have payouts exceeding 10%, well then the guys with a lot of gravitas sitting in high back leather chairs will be telling everyone to buy. So if it goes as it has in the past income oriented buyers late to the party who will post ugly as the Tsunami of new builds kills the market like it always does. But that is 2022 not 2020.

Wish you'd posted this in the original crude thread.

This is a very hypothetical debate. I started writing a long reply but I don't have the time. I think we are both agreeing that there is value here, but debating a) how much value and b) how much is already priced in. In theory it should be simple. X% of the fleet is subject to spot rates and hence are earning a multiple of Y times what they were earning a few months ago. Hence earnings should be X*Y + (1-X)*TC versus X + (1-X)*TC where TC is their time charter rate. Then if you can agree a market expected P/E of say P then the expected share price is something like P * [X*Y + (1-X)*TC] instead of P * [X + (1-X)*TC]. (Ignoring fixed costs).

If you know X (their websites have this information just not sure how up to date is), Y (which was about 70k/day now depending when you charted >$150k/day) and TC you should be able you calculate expected share price based upon earnings surprise. I'm not an equity analyst so I haven't done that detailed analysis. Either way, what the Saudi's, Iran and Chinese are doing with their vessels (most of the worlds VLCC are owned by the three of them) are only important in that they effect VLCC rates.

It's easy to see from today's price action that the heard are trading tankers like the K/M WTI spread which is interesting because it is not necessarily reflective of floating storage rates. This is obviously not a long term trade. Question is with today's euphoria in tanker stocks (DHT +8%, EURN +10%, FRO +12%, STNG +18%) how much of that surprise is now priced in? You could be right that the last buyers in 6 months time marks the top, but if 90% of the gains have been realized in 3 weeks do you want to hold another 6 months for the last 10%. Of course if it doubles instead over the next 6 months the answer is yes!

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 suko 
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Which is more irrational, EURN at $10 or TSLA at $745?

On another tack, XOM at $41 with an IV rank of over 70: would XOM be a good proxy for oil volatility?

XOM looks like it's at a 15 year low.


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 SMCJB 
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@Trailer Guy and @suko

https://seekingalpha.com/article/4338753-oil-chaos-crude-tankers-perfect-setup

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 Trailer Guy 
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Stumbled into these earlier in the week on Twitter.
Today a half sarcastic thread on twitter about when to sell tankers. Opinion was when the big boys start pushing them and or the new build order book hits 50% of existing fleet.

Poster of the first chart apologized for title, should be now not no. Not sure about the date on the second, I saw it early this week. But both are from famous sources locked behind paywalls.

After the big ETF fiasco the "evil site" (Zerohedge) had some Goldman opinion up. They are thinking sometime in mid-May Cushing will be effectively full. Others have written that no one actually knows what that is. In any event seems like from there on out tankers and barges will be it. Odds of normal demand returning soon not looking very good. Nothing so far to disprove the tanker once in a trading lifetime opportunity. Nothing to show that Joe Average is going to be interested in that story despite Jim Crammer mentioning NAT.

tankers used for storage



tanker rates

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 suko 
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To be fair, this tanker thesis is turning into more of a long gamma story than volatility.

The weed stocks of 2020.


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 Trailer Guy 
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suko View Post
To be fair, this tanker thesis is turning into more of a long gamma story than volatility.

The weed stocks of 2020.

But there is a very big difference. Tankers pay out big time (at least FRO and NAT) when they make it. And they all have profits up the wazoo (term I learned getting my MBA). At the same time this is like some Hollywood move plot. Nobody wants what they haul. A year ago they were abandoned and left to die by the big money analysts. And they are getting paid to not move oil which makes no common sense.

They are not sexy, they do not have a charismatic spokesperson like Elon to go on CNBC and hype the stocks. Now I gotta say if the viking princess twins that are inheriting Ship Finance, Front line, Golden ocean etc wanted to I bet they could. But no, all we have is a guy who runs a hidden value salvage fund (Mr. Krupperman) who goes by Kruppy, like I said, Hollywood stuff.

I agree there is no good way to get a handle on this. But there is going to be a year or so of really good dividends when just about every other source of dividend income is hitting the trash heap. History never repeats so just because my Dad got Frontline for under 20, collected more than that in dividends and spin offs and then sold for 65 does not mean it will happen again. But it did happen once. Oh and the pictures of the tankers do look impressive posted on the office wall.

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 suko 
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Incidentally, there is a wonderful novel about an investor who stumbles into the shipping business and learns some hard lessons, called "The Shipping Man" -- it really is a much different world from any other.


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 suko 
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VIX term structure, contango between VIX and M1, curve flat between M1 and M2. It's been almost two months since we have seen this state.

The VIX opportunity lies where at the point of a phase shift, like now with this flat curve. It will most likely be pulled down, doesn't usually stay flat for long.

Once the M1 M2 gets back into contango, which could happen tomorrow, that will be a green signal for shorting the vol products.


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 suko 
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QOTD "There is a huge disconnect between the money that is floating around in the stock market and the earnings power of the Big Tech companies. There is too much love for Big Tech and too much money crowded in just a few names. This is something we have never seen before. Unfortunately, the more crowding you see in the index, the more volatile the SPX will be as it moves only on the fundamental developments of a few companies. Single stock risk becomes ever more important for the SPX index. That means its volatility will increase. Effectively, the SPX is turning into the FNGS ETF here which only invests in the Top 10 tech names (FANG+). That means VIX levels will remain very elevated going forward, certainly much higher than the levels we saw in 2019. 30 is not going to be a ceiling for the VIX in 2020. More like a floor." [emphasis mine]

--Stephen Aniston now writing for investing.com

https://www.investing.com/analysis/the-big-5-makes-money-but-not-enough-to-bail-out-the-sp-500-200523259?ampMode=1


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 suko 
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Current outlook: short term long vol and long term short vol

Looking at VXX call spreads 43 47 May and further out for around a dollar

Simple and good long vol trade


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 motowater 
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I like the VIX being so high right now. More ticks with the same amount of time.

If you cant afford it all you have to do is fine tune your amounts with the emicro.

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 suko 
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So much for the long vol...

VIX curve has a very strange shape but front to back there is now a
slight contango, and 3.72% in the front two months, so that's the
signal for short VXX.

This month expiration is a week later, so it's not this Wednesday
but the following one.



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 suko 
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The question about that bump in the term structure around October -- is it overstated? Neither Biden or Trump would be a bad outcome for the market. Warren would, but not those two.


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 guidoisot 
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the sim trade of post 24
is getting close to expiry, just 7 days.

Yesterday bought back one of the 3 short 55 call for 15$.

Probably the rest of the spread will expire worthless, with a loss of 205$, unless the VIX spikes.

the spread now is this:

My Options Strategy ? Options Strategy Builder & Analyzer Online ? OptionCreator.com


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 suko 
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Most long vol trades are losers! Just the way it goes.

Although after this crash it was reasonable to expect it to win.

I got my ass handed to me on that long call spread from last week.


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 suko 
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More light backwardation. The front end of the curve is flipping in and out like a weather vane on a gusty day.

Very hard sailing on a gusty day.


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 suko 
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More light backwardation. The front end of the curve is flipping in and out like a weather vane on a gusty day.

VXX downside remains bid. Kinda hard to buy puts at these prices.


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 suko 
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As we go into June there is blood in the streets and 7% contango on the VIX term structure.

Yet vol remains bid.


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suko View Post
[*NOTE: this discussion deliberately leaves out TVIX, which does not have options and which went from $36 to over $1000 during March. It's a tainted product.]

TVIX is so frequently dislocated from it's fair value and has interesting path dependencies. Why avoid it?

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 suko 
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TVIX has been viewed as a broken product in the vol space since 2012, so vol traders steer clear of it.

I am surprised it did not get delisted during this latest incident. SEC should have pulled its certification.

For sure this is not the last time there will be problems with TVIX.


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 suko 
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Speaking of which, CS has announced the delisting. Good riddence, TVIX.

Looks like VIIX and ZIV are also getting the axe.

https://www.thestreet.com/etffocus/market-intelligence/tvix-gets-delisted-a-few-days-after-its-the-most-added-security-on-robinhood


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Regarding the demise of TVIX, the conventional wisdom among vol traders since Volpocalypse wiped out XIV back in 2018, is that basically you've got VXX and that's it. All the other vol products are garbage.


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VIX settle for July is 24.84.

Just a scootch further and we will be out of Zone 4 and into 3 for the first time in six months. Zone 4, call it the "Red Zone" starts at 23.

I guess we'll see some VIX upside for awhile, going into August.

Screen Shot 2020-07-22 at 12.25.14


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 suko 
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Ok now the JUL future roll-off is registering.

So, this term structure is not at all normal, but the front end looks kind of normal.

NOTE that the value between M1 and spot VIX at exactly one month out is usually 2.0.
This time it's 2.75 so normally that would be some serious edge for shorting the futures.

Screen Shot 2020-07-22 at 13.11.12


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Now that August is over and money managers have their plans in place, let's look at the VIX term structure.

M1 to M2 contango is over 18% and the difference is 5.25 points. Extreme. This has never been seen before.

There is more fear among money managers now than even when Warren was a viable contender.

So, how would you position for this as a retail trader? The usual answer would be time spreads, but those are forbidden for VIX.


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 Cogito ergo sum 
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SPX call prices vs put prices mint new highs.


Source: Spotgamma

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suko
M1 to M2 contango is over 18% and the difference is 5.25 points. Extreme. This has never been seen before.


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 Cogito ergo sum 
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Spot VIX never been this high, at an all time high for the market.



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Cogito ergo sum View Post

That is an interesting chart. Obviously back in the late 90s VIX stayed high for several years but that was followed by almost a decade of few new highs.

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Cogito ergo sum View Post
Spot VIX never been this high, at an all time high for the market.

Thanks for sharing. Never thought about viewing VIX in the same light as your second chart.

Thought this one was interesting too. It’s VIX seasonality during an election year.

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Now we know it was Softbank bidding up calls bigtime.


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 Cogito ergo sum 
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Market participants are still not done buying upside calls as per the image below.



Softbank appears to be a significant source of the call flow. - FT article

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 Cogito ergo sum 
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Now we know it was Softbank bidding up calls bigtime.

Appears to be working for them for now... SoftBank up $4bn on founder’s aggressive US stock options bet. Source: FT

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 suko 
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And this highlights two important points about the VIX that often gets lost in the discussion: VIX measures risk to the upside as well as downside

1) it's a measure of calls as well as puts, so although it's usually a Fear Index, sometimes the Irrational Exuberance of call buying exceeds the normal bias toward Fear and put buying so then VIX suddenly switches to an Irrational Exuberance Index.

Same pattern happened back before Volpocalypse in 2018.

2) it can definitely be manipulated by a whale


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 SMCJB 
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Interesting twitter thread discussing the true effect of the SoftBank Options purchases versus the Retail Option purchases.

https://threadreaderapp.com/thread/1302725084075810817.html

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 Cogito ergo sum 
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Election risk has been priced in cross-asset.


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 suko 
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I think the mail in ballot issue may make the vol play on this election much different from last time.

One wants to assume that the M1 M2 bump does not come out of the term structure on election night, but maybe it won't. I can imagine it might even get bigger if the outcome is in doubt due to mail-in.


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 Cogito ergo sum 
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I think the mail in ballot issue may make the vol play on this election much different from last time.

One wants to assume that the M1 M2 bump does not come out of the term structure on election night, but maybe it won't. I can imagine it might even get bigger if the outcome is in doubt due to mail-in.

There are numerous ways to trade this event through the vol complex. One of which is relative value.

If I were to express such a view looking at the spread between M1 and M2, I would probably trade the futures spread instead of using options. To reduce risk, I would probably look at trading spreads in further dated months. The beta of this spread position relative to spot vix will be lower.

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 suko 
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The election results will come in after the market is closed but the VX futures may be trading at that hour. VIX options do trade late at night but are not accessible to retail.


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Cogito ergo sum View Post
Election risk has been priced in cross-asset.

i don't know about the other assets but in VIX the election premium has been there for months. It looks more obvious in these charts as they show M1-M2 rather than U20-V20.


suko View Post
I think the mail in ballot issue may make the vol play on this election much different from last time.


suko View Post
The election results will come in after the market is closed but the VX futures may be trading at that hour. VIX options do trade late at night but are not accessible to retail.

A discussion point I am seeing more and more is related to this but even more extreme. "In 14 states — including some battlegrounds — officials can't even start authenticating early mail-in ballots until Election Day, much less begin tabulating them.*". We will not know the final result of the election until DAYS AFTERWARDS. Given that Democrats are assumed to favor mail in ballets more than Republicans, a possible scenario is that on election night Trump is heavily in the lead, but day by day that lead is whittled away as more and more mail in votes are counted. The uncertainty actually increases as things get closer and closer, and then finally on Election Day + X the final result is what? Market volatility in the days following the election could be significant as the estimates swing day-by-day.

Food for thought/Recap: In 2016 the stock market was down 5% overnight before closing up 1% at the end of the day.

* https://www.nbcnews.com/politics/2020-election/do-not-open-until-election-day-state-laws-will-delay-n1238806

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 Cogito ergo sum 
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i don't know about the other assets but in VIX the election premium has been there for months. It looks more obvious in these charts as they show M1-M2 rather than U20-V20.


To be honest, the chart in question is actually labelled as M2-M1. The spread is adjusted on a rolling basis.

The current shape of the VX forward curve offers some interesting opportunities for relative value trades.



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 suko 
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Jay Wohlberg:

"Oct VIX futures are still elevated and have been since March. The backwardation structure doesn't necessarily suggest increasing volatility and since spot VIX is lower than Oct Vix futures, I think Oct Vix futures drops towards spot VIX."

So, all things being equal, that means 5 points have to come out of the OCT futures in the next month to get to a VIX of 25.

To put that in perspective, let's remember that the normal case is about 2 points after expiry and between the new front month and spot VIX. This is vastly greater. I've never seen this before since I started following VIX.

So, what's your play for this?


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 suko 
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The NOV future must necessarily increase from here on out, too. OCT rolls off two weeks before the election, and the tension is just gonna be starting to ratchet up immensely then. The outcome of the election may not be known until after NOV rolls off on the 17th. So that means NOV will be elevated right till expiry. DEC will also be affected.


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 suko 
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No sooner did I write that about NOV increasing than it jumped up to the same level as OCT.

I am beginning to believe that I am getting pretty damned good at reading the VIX term structure.

If you read what I wrote yesterday and took action to get long NOV, you made some money.


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 Cogito ergo sum 
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The ratio of 60-day constant maturity ATM implied vol for 10 Yr vs. S&P 500 appears to be a bit cheap on a historic basis.


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 suko 
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Somebody was talking about bond vol vs gold vol also. I don't play this pair.


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 suko 
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VIX Nov 40 60 call spread seems to be one popular long vol play going into the election. Somebody bought a ton of them last week at 2.38. Now it's going for 2.25. BTFD.


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 Silver Dragon 
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Hey guys,

Still learning the about volatility. Appreciate all the posts! Thought I would share a interesting chart on future looking vix options.

Robert


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For those interested, CME is launching a new Nasdaq-100 Volatility Index. We will be hosting a live webinar with them on launch day. I will post the registration link here once I have it.

https://www.cmegroup.com/trading/equity-index/us-index/volq.html

Feel free to reach out with any questions. (312) 765 7228. There is a substantial risk of loss in trading futures and options. Past performance is not necessarily indicative of future results. Full Details.
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 Cogito ergo sum 
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Ironbeam View Post
For those interested, CME is launching a new Nasdaq-100 Volatility Index. We will be hosting a live webinar with them on launch day. I will post the registration link here once I have it.

https://www.cmegroup.com/trading/equity-index/us-index/volq.html

It is a welcome addition to the vol complex. Curious to see the rate of adoption by market participants. With that said, exchanges are slacking on VOLQ index options...

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 Cogito ergo sum 
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Hey guys,

Still learning the about volatility. Appreciate all the posts! Thought I would share a interesting chart on future looking vix options.

Robert


It appears that market participants are reluctant to sell vol for the period when election results are pending. Hence the elevated risk premium. If the event is priced wrongly, the entire curve is expected to shift and slide. Perhaps it is not a bad idea to trade the relative value between the vols.

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 Cogito ergo sum 
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Although elevated, the vol curve for 60 dte constant maturity ES options looks fairly flat compared to 1 month ago. ATM vol for 60 dte constant maturity is trading ~2.7pts above its 30 dte counterpart. Spread between these expiries is lower than I expected. Put skew for the wings has been coming in for the past month. Demand for downside protection has been waning.

Fun fact: the 2020 Election is the most expensively priced "known-unknown" in the history of the VIX complex (forward vol).

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 veloxtrader 
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Hey @suko thanks for an interesting thread and a good read, I sure learned a lot! I've been trying to become a bit less discretionary in my portfolio management and going long vol / VIX in these liquidity cascades that we have been experiencing these past 2 years would have mitigated a big chunk of my losses. I have been experimenting with a German etf Lyxor S&P 500 VIX Futures Enhcd Roll which tracks this index ( https://www.spglobal.com/spdji/en/indices/strategy/sp-500-vix-futures-enhanced-roll/ ) and trades the the entire curve from M1-M7.

I've been experimenting with different ways of defining backwardation for timing purposes to go long vol but it seems to me that the most important contango percentage to keep track of is the front month and when that goes negative, would you agree? This in combination with VIX spot closing above yesterdays close makes sense to me as a timing tool, although I don't have enough experience with the VIX to say so definitively.


This caught the vol explosion already at Feb 24th this year. Or maybe some combination of all of them when 0 > ( M1-M7 / 7) is a good definition of backwardation?

Thanks again, and others are welcome to come with inputs obv.

Velox.

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 suko 
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>>going long vol / VIX in these liquidity cascades that we have been experiencing these past 2 years would have mitigated a big chunk of my losses.

You need to keep your eye on the smart money. When they get hedged up that is your sign to buy some too.

>> different ways of defining backwardation for timing purposes to go long vol

This is a problem that has engaged the rocket scientists in hedge funds and banks for many years. There is no simple answer to it. Other than watching the smart money hedging as mentioned above.

If you want to put in place a more persistent hedge using vol products there are two choices, depending on where the edge is at the time, a) VIX call spreads b) long SPY butterflies.

If you want to try some backtesting of such strategies, I suggest using Trade Machine Pro.

Also, we haven't talked about VVIX much in this thread but you need to keep your eye on it in making decisions on whether to look to SPY puts or VIX calls for your hedging. The higher the VVIX in relation to VIX the more expensive vol products are.

VVIX is currently 133 and this is well above the 120 level that I see as the top bound for buying vol products. It will be going higher still.


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 suko 
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Cogito ergo sum View Post
It is a welcome addition to the vol complex. Curious to see the rate of adoption by market participants. With that said, exchanges are slacking on VOLQ index options...

There has been an excited ongoing discussion about VOLQ on Vol Views.

I really look forward to its widespread adoption. It's perhaps a better design than VIX.

The history is that many vol products have been introduced over the years only to fail sooner or later. We just lost TVIX and ZIV as well as others.

At the current point the only ones that have enough liquidity to be tradable in normal times are VXX, VIX, /VX and UVXY.

When market liquidity dries up in a crash VXX is the one where the spreads are most tradable. So, the VOLQ products will have a long, hard uphill battle to get into to top of this lineup next to VXX.

How likely is that?


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 Erikie 
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Wondering why there are not many VIX discussions. This product is big

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 ajk1 
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suko View Post
Some important distinctions to be made up front:

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.

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 ?

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 syswizard 
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Hey Guys - good discussion all.
However, I'd like to know what is everyone using for short-term volatility in the E-Minis...say a 1000 tick chart or 5 minute chart ?
Right now I am using Highest High minus Lowest Low for 10 bars/periods.
I'm not really happy with that...and wonder if the historical volatility calculation is better ?
Or is there something else I should be looking at ?
I need this measure to basically set stop losses....dynamically instead of fixed.

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syswizard View Post
Hey Guys - good discussion all.

However, I'd like to know what is everyone using for short-term volatility in the E-Minis...say a 1000 tick chart or 5 minute chart ?

Right now I am using Highest High minus Lowest Low for 10 bars/periods.

I'm not really happy with that...and wonder if the historical volatility calculation is better ?

Or is there something else I should be looking at ?

I need this measure to basically set stop losses....dynamically instead of fixed.



What strategy do you want to trade? For me it is not clear . If you trade vix you can calculate vol of vol


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 syswizard 
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Erikie View Post
What strategy do you want to trade? For me it is not clear . If you trade vix you can calculate vol of vol

Sorry, but IMHO the exact strategy has little to no bearing on the use of a volatility measure.

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syswizard View Post
Sorry, but IMHO the exact strategy has little to no bearing on the use of a volatility measure.



Sorry misunderstood. Assume you trade es mini in a daily graph you can use 10d atr and realised vol % as a dynamic stop loss or target


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 syswizard 
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Erikie View Post
Sorry misunderstood. Assume you trade es mini in a daily graph you can use 10d atr and realised vol % as a dynamic stop loss or target

Once again, you misunderstood. I am talking about INTRADAY bars...100 tick, 6 tick range, etc.
ATR has no relevance for intraday bars as the close of last bar and the open of the next bar are the same.....99.9% of the time.
re: "realised vol %" - Do you have a formula for that ?
On my platform I have built in: Volatility, VolatilityClassic, VolatilityExVal, VolatilityStdDev, VolatilityStocks.

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 shodson 
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Volatility as measured by the VIX and its derivatives don't change much intraday, but they can have significant long-term trend moves or large impulse moves across multiple days, weeks, and months. For example, the swift collapse of the VIX after the election was pretty well forecasted by the VIX futures term structure, so that was a pretty great trade for me. I did the same thing with Brexit.

I wouldn't bother trying to day-trade VIX futures.

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 jackbravo 
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syswizard View Post
Once again, you misunderstood. I am talking about INTRADAY bars...100 tick, 6 tick range, etc.
ATR has no relevance for intraday bars as the close of last bar and the open of the next bar are the same.....99.9% of the time.
re: "realised vol %" - Do you have a formula for that ?
On my platform I have built in: Volatility, VolatilityClassic, VolatilityExVal, VolatilityStdDev, VolatilityStocks.

Why can't you just use range of the bars as volatility? So calculate range of each bar, then stick a moving average on it, and you'll get a volatility measure. Bigger range =larger volatility.

Or you calculate close - open as the range. It would highlight volatility compression.

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 syswizard 
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jackbravo View Post
Why can't you just use range of the bars as volatility? So calculate range of each bar, then stick a moving average on it, and you'll get a volatility measure. Bigger range =larger volatility.

Thanks for that Jack, but I wanted something more sophisticated that also reflects price action. Right now, Highest High minus Lowest Low is so mis-leading....as that indicator goes up when the market rallies straight up. I need to catch the number of zig-zags or back 'n forth price action. To me, that's true volatility.

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syswizard View Post
Thanks for that Jack, but I wanted something more sophisticated that also reflects price action. Right now, Highest High minus Lowest Low is so mis-leading....as that indicator goes up when the market rallies straight up. I need to catch the number of zig-zags or back 'n forth price action. To me, that's true volatility.


Perhaps an ATR based Renko charts cold be a happy medium?

The ATR will give you the volatility component and the Renko chart will give you the zig zag price action element.

The issue you may have is that when ATR changes and you re-configure the renko bar size, you may loose any historic context as all bars get re-drawn to the current bar size.

As you can can see, you will have at least two judgement calls to make:

1) What period ATR to use.
2) What % change you will deem significant to re-draw the Renko bars.


Just something to consider.

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 suko 
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LPs have jacked the vol on some of the GME strikes to over 1700%


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