Shorting the VIX

*sniffs* Hey, does anyone smell that weird odor? XIV?

Me neither, because they imploded like the initial collapsing stage of a black hole. It is now in the netherworld of stupid ideas.

 

if I can trade the actual VIX spot/cash how can short lose money? The VIX always comes back down, never does it stay over 50 for too long. Even if it spikes to 100 it still comes back down pretty quick

How does a short lose?

 

Short it often enough and you will see.

 

but you can't in my example, read my OP.

I said once it's over 50 how does a short not work? as it always comes back down sooner vs later

 

I could not agree more. Understanding the risk in any position is key to success.

 

“The VIX had always come back down, never did it stay over 50 for too long”

 

not sure what you mean

last 30 years the most it has stayed over 50 is for a few weeks. Means you shorted it every time it hits the 50 area over the last 30 years you would have made. Not once would you have lost, as it always came back down within weeks.

Why would the VIX spend more than a few weeks over 50? it has yet to do this in 30 years!

 

Keep in mind that VIX behaves very similarly to SPX puts, and in fact you can find some LEAP SPX puts that move almost in line with VIX for a time.
This is also the reason VIX behaves the way it does. SPX puts are purchased as insurance, and insurance cannot stay too expensive for too long since no one will keep spending money on it while there will be plenty of sellers when it’s too expensive.
And puts always decay anyway.
So generally you could just as well sell SPX puts, while also finding many articles about why this may not always be a good idea and how people lose money doing this too often. It works for people who aren’t desperate to always find something to sell/short.

 

This is where poker is different than finance.
You know what’s inside the stack of cards,
You don’t know what’s inside the VIX.

There is absence of evidence.
Not necessarily evidence of absence.

Don’t worry, the VIX is going to surprise you.
Extremes are taken down by greater ones.
It’s just a matter of time.

 

If you went short VIX futures as soon as it crossed above 50, you would have lost over $30,000 per contract (in just 4 days) by the time it hit the top at 80.85. I would call that a disaster in the making.