VIX fly / spread journal

Discussion in 'Journals' started by Jgills, Oct 22, 2012.

  1. Jgills


    I wanted to lay one off at the close, but couldn't get the order in. It looks like i would have executed at 17.60 (just to lay some risk off), so with the future actually closing 17.85 i would consider myself lucky.

    right now i'm sitting on nov with an avg cost of 17.37, we will see what happens monday. i hope you all have a great weekend.
    #31     Nov 2, 2012
  2. do you have some system your using to generate signals on directional trades in the futures? you seem to be half playing direction half playing the curve... ?
    #32     Nov 2, 2012
  3. Jgills


    for my trades in the curve i have/am still working on my system. sure i have ran backtests that show profits, but that is only so much in this space, its pretty d*mn easy to accidently curve fit

    the directional trade that i'm currently in is less a function of my curve system and more a function of the perceived cheapness that i see and my general market view.
    #33     Nov 2, 2012
  4. so your taking positions on the precieved value of the future related to the spot and direction in the front month... tough space to trade.. lot of risk up.. lot of current down in the futures ... the entire bleed shows up in the vix etfs... looking at a long term chart on those will show you how much it costs to stay long volatility in front month futures..

    do you have some back testing you are doing on the index.. then applying it to the futures?
    #34     Nov 2, 2012
  5. Jgills


    well, those indicies are very different than straight positions in one of the futures. the bleed for being long the nov future is no where near the bleed for being long VXX (the etf that tracks the S&P 500 VIX Short Term Futures Indiex).

    if you read into the document (i can send you a spreadsheet i built to replicate the index if you're interested) the index tracks the performance of a position in a constant maturity future. you may be familiar with it, but i'm going to explain it further because your comparison leads me to believe you're not completely familiar with the difference. if someone notices a flaw in my explanation feel free to correct me.

    to maintain a constant maturity future, the index rolls a position every day between the front and second month future, THIS is why it bleeds so hard, you're paying the premium between the front future and the 2nd future EVERY day. the current difference is ~80bp (this is a dynamic number and is relatively small because the dec future has always traded with a kink in it relative to other months). so you're paying the # of contracts rolled to track the index * 80bp PER day if you go long VXX today.

    if we move onto my outright nov position and you want to make a similar comparison, you can tell me that the premium i am paying is the difference between spot vix and nov vix - this is where my perceved cheapness is. the current difference is ~20bp (it actually went negative at one point today). if you're looking at this as decay, or bleed, that means i am paying ~20bp (this number is also dynamic) over 18 calendar days (12 bus days) to expiry.

    There is a very large difference between 20bp over 12 bus days and roughly 1/20 (i say 1/20 assuming its rolling 1/20th of the position each day into the next future) of 80bp (and often higher than 80bp) per day.

    i do have seperate backtests that i have run on these indicies as well

    sorry if this was too long/drawn out, or if i am preaching to the choir.
    #35     Nov 2, 2012
  6. yeah.. i'm familar with the roll cost..i haven't quantified it as you have other then in a lost trade on going long the vixy and holding.. which got me into the futures directly.. so we are essentially talking about the same thing.. but the difference is your staying in the one month and not rolling up the term structure constantly like the etf's.. i was just wondering how aware of the magnitude of the pull down to spot there is on the futures term structure.. and obviously we you are.. .. are you bias to trading long in the front month? and shorting the term structure? by shorting the term structure ....i mean long the calender spreads.. -1/+1 are you trying to offset your blow out risk? do you have anything in place in an event that things go backwards?

    its not long and drawn out.. :)
    #36     Nov 2, 2012
  7. Jgills


    i don't forsee any event that would take place that would send the curve into a deep inversion without me absolutely crushing it. actually, a curve inversion would be one of the best cases for me, but it isn't necessarily what i'm betting on.

    the only trade i have on is this long nov future trade, so it isn't currently offsetting anything, but sure i like other trades in the term structure, i'm always on the lookout
    #37     Nov 2, 2012
  8. haha well if your long the front month.. obviously you stand only to gain in tail events.. i thought you were spreading more and playing the curve.. i'm new at all this.. i find it interesting that you have it calculated how many bp's your losing by involving yourself in the vxx short term futures roll trade.. have you ever thought it might be hard to price options with another parameter.. that is term structure.. i'm very curious how the hell they could price the vxx vixy options with any degree of accuracy.. its one thing pricing risk in equities.. but an instrument that is continuously following a changing futures curve... hmm ever wonder about that?
    #38     Nov 2, 2012
  9. Jgills


    i do spread more and play the curve, it just so happened that when i started this journal my view was what it was. i have thought about the pricing of options on the etf's and looked at some historical data on it.
    it's an interesting space, if you want to chat about it send me a private message.
    #39     Nov 5, 2012
  10. Jgills


    i hit the bid @ 17.90 a min ago.

    pnl on trade + 0.90 vol

    still have two nov left.

    *edit* total pnl on journal to date is +0.45 vol and the avg cost of the remaining nov is 17.55
    #40     Nov 5, 2012