The opinions expressed in these forums do not represent those of C2, and any discussion of profit/loss
is not indicative of future performance or success.
There is a substantial risk of loss in trading. You should therefore carefully consider
whether such trading is suitable for you in light of your financial condition. You should read,
understand, and consider the Risk Disclosure Statement that is provided by your broker
before you consider trading. Most people who trade lose money.
Recently, the VIX index reached to one of the lowest levels ever and every time after that we saw the volatility increasing strongly sooner or later.
If this time it will not happened again, we will enter to a totally new area which we had never experience before and the back testing never covered!
Are we facing to a low volatility or the history will be back again? No ones know but your strategy should be ready for both scenarios.
Many developers use the VXX data since the the year 2009 as the basis of the strategy but do not look at the VIX values before this time so their models maybe do not ready to the new environment…
So be prepared to the increasing volatility or be sure that your strategy is ready to the new world of one digit of the VIX index value…
CNBC just reported that when the VIX moved below 10 in the past, the VIX was always higher one week and one month later (as I recall on average between 14 and 19%).
XIV (which shorts volatility) can still go higher when the VIX is low, even with moderate rises in VIX. But when the VIX is low, XIV is more vulnerable than usual to big drops in the 12-24% range.
If you had bought XIV when the VIX briefly dropped below 10 on Feb 1, you would have made nearly 15% in 2 weeks.
On backtesting, I would hope that people have backtested their main volatility timing models to 2004, when daily prices on XIV, VXX, and UVXY can be estimated from actual futures prices.
I know that today I reduced my exposure to XIV in my strategy, Quant Models Volatility.
I don’t think so… It more looks that the environment around the globe is changing slowly but surely to a great confidence in the economy…
For example you can see the boom which is coming from Europe which seems that it will be with us for the coming years…
The odds are against anyone who uses VIX as a hedge of any kind due to theta and premium decay. The only way VIX long calls profit is when VIX is in backwardation, which turns out to be <30% of the time since the inception of the VIX.
Hi @MatejGlavas
The article suggests that Ruffer holds around $90M in long VIX calls with a ~$20 strike and costing around 50 cents each… based on today’s prices, that’s probably with expiry out there less than two months (based on the options volume I see, not sure how he even buys $90M. The article says nothing about a 10% market share, and you have no link for that. But if he does have a 10% market share, with a $90 investment… that’s not 10% of very much nowadays. Hardly a dent in the options chain that makes up the VIX itself. There may actually be some market manipulation of the VIX options (see the data that shows VIX manipulation may be taking place near expiry: https://westernfinance-portal.org/viewpaper.php?n=491456 ), but that’s not what Ruffer is doing, he’s simply hedging for his $20B hedge fund. Hardly newsworthy (“Fund manager hedges with VIX options!”) and it’s only one of his hedges. I should think that he will has not gained much of anything on those hedges recently, but it’s a hedge, it’s supposed to lose money until something hits the fan.
My point was that if that is true, I doubt he will be able to cash in or even BE. And if VIX jumps, it will be after his calls expired.
And that if it is allowed to have 10 % in single market (I believed that there are some restrictions, but not sure) he is distorting it.
Agree on volume, it is super low, and not sure is it possible to do. Only reasonable thing would be to buy VXX or UVXY because of volume there.
