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Question about unusual deep dips

I am watching this strategy: collective2 . com/details/116811782

I think this strategy just does one thing: short VIX.

When I look at its performance, I noticed a very unusual deep dip, see screenshot. This deep basically represents a 35% loss. But it recovered in one day. What happened? Can we trust Collective2 for this data? Can we trust it in general?

C2 is absolutely right. The data/chart is correct.

This guy is selling a ton of naked VIX options a day or two before expiration. Most of the time it works well. Except when it doesn’t, and you lose EVERYTHING. The equivalent of picking up nickels in front of a steamroller.

On Monday the 6th he shorted 500 calls on a weekly VIX contract that expired Wednesday the 8th (pre-market). Figured, nah it can’t go to 21, it’s only at 15 now…
Then on Tuesday it spikes to 21. He sells some in a panic.
Luckily for him, VIX then calms a bit and closes at 20. So all his calls are out of the money and he keeps the rest of the premium.
If the VIX had closed at say… around 24 - he would have lost $150,000. Basically his entire account.

That is why this strategy is not TOS. People who invest in this should know they could lose everything in a split second.

3 Likes

Thanks for the explanation!

IMO this kind of risky strategies show up in C2 in a rank that’s too high. They will win in most months, and very steady, with great return. But they will make people lose everything in one day (nobody can predict which day).

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