Cash Vix ETFs

How do you size an option arb in delta dollars? Thx.

 

Arb? What exactly are you trying to do?

 

Buy vix. Sell spx puts. Well, probably a strip of spx puts over time. Or a skew trade.

 

Gotta be specific.. Or no one can help.

 

OK, let me make sure you understand something. I know this is complicated. The VIX is a "fixed" structure. SPX is a "variable" structure. These two are NOT the same thing. There is NO arb. You could attempt to try to replicate a VIX position in the SPX through "dynamic" hedging, but good lord would that be a headache. Your SPX position would contain deltas and your VIX position would not. If the market were to move, and it will, your SPX position will no longer be a vol position, it will become a directional index position with a vol component. The way option traders "attempt" to isolate vol in the spx or SPY or ES options is through actively hedging the underlying to maintain a flat delta position. This would become a major headache not to mention a commission nightmare. And you still would not have equal positions. The closest thing to the VIX would be trading the Variance swap futures which also isolates vol and removes the directional component. I hope this is making sense.

 

I understand but since you do not understand I understand, let us move forward. Give me an EFT that follows the 30 day forward. If your choice is VXX, you would see my concern.

I know it is not free money. I do not want to pay the difference, because I know each day will cost the difference between the two futures on a portion of the ETF. If the vix in options is higher than the back month, I will love it. I know it is not free money, but I will love it. Why? Because I will get my direction in current vix right, and the backwardation will be winds pushing me in the back. I will not pay a stiff the difference while he sits on his ass. He will pay me.

You see, I understand, but some little voice in your head has been telling he does not understand. It is just the little voice inside saying it. It is not a fact.

 

They all attempt to follow the vix using some fixed point on the curve... You I don't think understand how these etfs derive their price... Otherwise you would understand they all decay as a result of the constant rolling of positions in the vix futures

 

Read about how VXX is built. It has an implicit carry.

 

I've read the prospectus. I trade the vix term structure... I know exactly how the vxx rolls in the futures...

 

Since you know it, why you do not want to understand I do not want to be exposed to it, because it will make me as if I am paying a vix half way between current and the next month. I do not want that. Why is that tough for you to understand?