Ok, let's say in a 10k account I am short 2K of TVIX and the rest is in cash. Even though some short vol crowd simply hedge like this with cash, I want a separate hedge against a meltdown, not just a drawdown. So, do I use two nickel VXX OTM calls, a proportional amount of VIX calls or employ UVXY, SPX, ES or SPY calls?
why don't you build a portfolio of otm vxx calls against your 2k position over time and through different senarios and see for yourself... do the work
Yes, I could backtest or wait 1) or 20 years and see what various formations show. But if someone has already done the work ....
You can’t hedge as that’s the risk you are underwriting. You can spread it but that is a different specific view.
Yes, you ARE the hedge. And "hedging" with cash is not hedging lol. I remember a report, a long time ago, it was about some fund or quant or someone that was going long/short volatility and doing the opposite on the underlying. So long/short VIX derivative or whatever and the opposite long/short SPY or whatever. He adjusted the ratios over time as one outperformed the other more than historically. He had some good results. Hope this helps.