VIX trading and stocks

C2
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Hi !

Just wondering, why is the VIX instrument looked on as a stock in C2 (its more a futures contract) or in best case an ETF/ETN.
I hope potential subscribers understand the risk involved and the function of the VIX. It is the sp500’s “volatility index”. And if you are holding an VIX position you have to pay a rollover fee (next months future contract fee every month) in other words —> the main trend line is going down…

Very few can trade this contract for 200-300 trades profitably (statistical significance). This is the same with forex but here you are due to pay interest rates every night (unless positioned like a carry trade, you pay spread (and more so % wise the less pips you aim for) and you are always hedging against another country (limiting the profit) it is for true a negative sum game. Here also very few are profitable past 2-300 trades.

But hey, those who are profitable with VIX and FX they can make a looooot of money so I can see why this is interesting for beginners…

But I think it’s wrong that VIX trading systems come up in “The Grid” when I look for the best stock trading systems in here. And I think many “new” to trading don’t really understand the underlying assets difficulty.

Lars Larsen
Shining Delta Capital

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Hi Lars,

I expect the average potential subscriber here knows as much about the risks involved in VIX-related ETFs and ETNs as about the risks of excessive leverage in the FX and Futures markets or the risks of short-selling Options. Back in the heyday of 2016 until the Volpocalypse this topic was widely discussed here, and elsewhere. A number of strategies blew up in early February 2018 as a result of these risks, and some others were properly positioned to take advantage of the situation because of their understanding of the risks.

I certainly think that most folks understand that taking and holding a long volatility position during a market meltup is not a good idea; that’s been clearly articulated for the past many years here and elsewhere.

I do not see your arguments as sufficient to casting out an entire class of viable trading strategies. In fact, narrow the grid to show only those with “VIX” in their names, and you see 7 of 9 with positive CAGR. Of those with “VOL” in their names, 13 of 16 have positive gains, and four of those are TOS strategies. This does not include those failed strategies no longer listed on the board, of course, but more than half of those VIX and VOL strategies just mentioned survived last February’s crash of short volatility equity instruments.

Volatility doesn’t have to be your cup of tea, but that doesn’t mean it can’t fit into the portfolios of other investors.

//// Additional note on volatility trading ////

Finally, it seems that there may be a new short volatility ETF offered soon (suggested ticker SVIX), offering XIV-like returns without such danger of total collapse. Here’s a link to the Yahoo article mentioning it:

https://finance.yahoo.com/news/ghost-xiv-rises-short-vol-214719228.html

And here’s a link to the CBOE index that it will track. Look back to Feb 2018 to see that it only falls ~30% instead of dying like XIV.

http://www.cboe.com/index/dashboard/SHORTVOL#shortvol-performance

In that graph, you can add SVXY and click compare to see that performance is quite comparable before the Feb 2018 crash, and then SVXY has only 1/2 the performance afterward, due to its deleveraging. You can also see that 2019 would have produced 100+% gains overall if held in a long SVIX position. Hence the widespread interest in these vehicles. Yes, they should be understood by investors, but so should any investments, and position sizes should be appropriate to the risks.

Paul Howell
v1Trader

2 Likes
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Hi Paul,

I get your point but VIX is not a single stock instrument, nor is it building on the actual value of a company. It is an instrument for speculating in the volatility of several stocks and is the only way you can make money (volatility change).

I think C2 would be better of having a more clear line here as stock trading is much more “easy to do” than VIX or FX for that matter. In stocks you actually have people working for the better of that company. I see lots of subs/sims subscribing to these systems (I assume many of these systems will not “make it” in the long term).These subs/sims are people which are more keen on making a lot quickly, than a lot slowly and many of them need to be protected from themselves.

Also, why is then Futures holding its own column? that is also a stock based instrument…

Not trying to offend anyone here but I did, I know and I just want to say there are some really great VIX/FX traders in here, but it is as hard as it gets.

About 4000 hedge funds in the US gave up in 2019, the average return was just over 8% while the SP500 had one of its best years…

Just something’ to think about… I just want C2 to be the place to go if you want to make money passively… :slight_smile:
Matthew?

Lars Larsen
Shining Delta Capital

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To me it is as simple as SVXY, ZIV, TVIX, etc. are ETPs where you cannot lose more than you use to purchase unless you purchase with margin. Futures have crazy amounts of leverage in comparison. There is no doubt that these ETPs are much more risky than true stocks. So I agree with you on that. I do think C2 is doing the right thing classifying them as stocks just like all my brokers do. Similar to how they do with Bond funds, gold funds, Bitcoin funds, etc.

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I’m not quite sure I understand what you are saying here, Lars. Is it that you want instruments like SVXY classified as something other than a stock so that they sort differently on the grid? Or are you asking that something as risky as SVXY not be allowed to be traded on C2 because people aren’t aware of how the instrument is constructed? I am doubtful you mean the latter. Either would open a real can of worms. Every leveraged ETF is a derivative, using some sort of leverage, futures, options, etc… Heck, even many bond funds use leverage.

I believe those people to be in the minority here, Lars. People come here to trade, not to buy and hold forever. Have you noticed how people start to complain if a trading system hasn’t traded for a long time? There are plenty of newletters and sites, like Seeking Alpha, where people can get advice on things to buy and hold and they cost a lot less than paying subscription and autotrading fees on C2 for a system that doesn’t trade much. Even if the system invests in dividend growth stocks, unless they are really high growth stocks, for example Apple, justifying the C2 fees each month may be difficult, especially for small accounts.

Many have lost appreciation for personal responsibility. People expect some authority to step in and protect them from themselves. I think people who come to C2 to trade need to do their own due diligence and take their lumps if they get burned by buying something they don’t understand. When I was little, my parents always warned me to stay away from sources of electricity. I understood about outlets but, out of curiosity, quickly touched the heating coil of an old space heater before it got hot, thinking I was safe. I only did that once.

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They aren’t risk categories, Lars, they tell you on which market the instrument is traded, what kind of account you need to have and whether or not you will need to enable margin. Many brokers don’t provide futures or forex trading. Also, many people have no desire to trade futures, Forex or options so it’s convenient to be able to eliminate them from the grid view.

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Yes, so they sort differently :grinning::+1:

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Hi Lars,
The only objection you stated is to trading “the VIX”, which of course is itself untradeable. The nearest and most popular VIX trade, that loses over time as the market goes up (as you describe) is ticker VXX. So you propose that long VXX trades in a strategy should get flagged for the Grid? As opposed to the inherently more dangerous short volatility trades, with their incredibly left skewed return profile?

Although I suspect it is computationally unworkable for the Grid, it certainly would be nice to have the ability to create a custom column that takes a symbol like VXX and show whether (or not) any given strategy has traded that item lately. Potentially, it should be workable to create a few such columns that are pre-indexed for the Grid (like a VXX column), but allowing user-selected custom symbol columns would almost certainly be unworkable.

Frankly, I think this is too much babysitting or helicoptering. We’re grownups, we can do our due diligence. C2 makes it very easy to see what instruments have been traded in each strategy. We don’t need cigarette-warning-label style notations on the Grid or anywhere else.

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V1Trader,

No, not that specific, traders have to be able to trade whatever they want to. I just want a clearer line for pure stocks and VIX traded fund especially. I don’t want subscribers to think they have been copying a stock trader when they haven’t… And then they might say “it didn’t work so I won’t try it again” type of thing… Because if they do pick the “correct” system they are more likely to make money on C2, subscribers and system developers will make money from this. And they will tell friends and family.

On the leader board now on “stocks” is VXX fund…“Surprisingly” he/she only has 10 trades… But he has gotten 2 subscribers last 7 days… This system also has a win rate of 100% and so forth… If these 2 subscribers are actually putting money in this system and when the system starts loosing they might leave C2 instead of having a good return over time with another system… But off course we can argue that these to would find this system anyway (I see the subs have been here for some years). I assume you get my point, some people need to be better informed and some do need guidance. That’s why they are here in the first place…

If you look at The Grid and sort by age, and compare annual return on top 10 for stocks vs futures etc. stock trading systems are trading way better…

But I also reckon that people will trade and follow whatever they want anyhow, but now it’s out there and I have given my thoughts on it :slight_smile:

Your a good guy V1Trader thanks for the discussion :slight_smile:

Lars Larsen
https://collective2.com/details-list/124753017

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Hi Lars,
I guess we’ll just disagree (with all due civility, of course : - ) To me, separating out any subset of equities to suggest it needs a warning is silly, like putting an additional label on menthol cigarettes because the sweet candy-like taste makes you forget that they’re really just cigarettes. Next along will be the bloke who wants to separate out all the 3x leveraged funds too, cause everyone knows how dangerous they are.

I’ll also disagree that because some people might need guidance (away from investment risk), C2 needs to provide that guidance. They do not. And it’s unlikely that segregating (in the Grid) equity vol strategies funds would be enough to actually provide any kind of meaningful guidance… so you’d be back looking to further ostracize those strategies, and favor your own.

You seem a decent fellow… may the best strategies win.