AQR Quants Say Most Long-Vol Bets Lose Even If They're Right

Discussion in 'Options' started by ajacobson, Sep 24, 2018.

  1. ajacobson

    ajacobson

  2. ajacobson

    ajacobson

    Here's the actual paper.
     
  3. d08

    d08

    This has been my conclusion as well. As much as I've liked the idea of long VIX, I have never found something that works. Sure, in 2008-9 you would be producing but in 2012-13 the losses would be consistent. Overall the returns don't justify the drawdowns.
     
    guru likes this.
  4. panzerman

    panzerman

    Since the VIX futures term structure is usually Contango, perhaps one should only go long volatility when it goes to Backwardation. I actually like the idea of selling vol when the VIX3M/VIX ratio is less than 1, but I have yet to back test that theory.
     
  5. iprome

    iprome

    Most lose, but when they win, they win big. :)

    Isn't it just the argument of winning-10%-in-90%-of-the-time vs winning-90%-in-10%-of-the-time?
     
    dealmaker likes this.
  6. What do they mean by long vol on the SP500? Buying a call option in expectation of a rise in premium?
     
  7. sle

    sle

    They do it using the two methods - a vol index treated as a vol swap (LOL) and delta-hedged 1 month options. It's worth reading the paper, even if some of the methods (and conclusions) are flawed.
     
    Reformed Trader likes this.
  8. I took a quick look at the paper just now. As usual, AQR approached the problem from several different angles in order to see if they'd reach the same conclusion (they did).

    They only test front-month index options, though. (As far as I can tell, when they use the term equity option, they mean index option.) Long vol traders I've looked at tend to go to less expensive places to get their exposure - for example, longer dated index options, calendar spreads, individual equity options, and VIX futures three to seven months out.
     
  9. Not surprised they reached this conclusion. They are under performers themselves. I can't find one styled fund out of many that got anywhere near the index. Most of their fund's 5 year returns are in the 1x% range. S&P500 5 year return is around 77%.

    aqr.png

    Most traders are losers. We knew that already. In any market/strategy.
     
  10. srinir

    srinir

    What?
    Those returns are in CAGR and they also have better Sharpe atleast for the very first fund i looked at.
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    Last edited: Sep 25, 2018
    #10     Sep 25, 2018