VIX future can be easily "controlled" and XIV exploded was a well plan

Discussion in 'ETFs' started by GloriaBrown, Aug 25, 2018.

  1. do some maths then you know making VIX raise 100% or more in few minutes is not really that hard for a giant player
  2. guru


    Yes, and we know the name of that player. It is David Casner at Goldman Sachs. His team pumped and dumped SPX while buying VIX calls, then made $200 million on February 5.
    jys78 likes this.
  3. sle


    LOL. Pumped and dumped SPX? Whatever it is you're smoking, please introduce me to your dealer...

    @rallymode @destriero @newwurldmn - don't forget the popcorn :)
    Last edited by a moderator: Aug 25, 2018
    toonerdy likes this.
  4. guru


    I smoke my own stuff.
    You can do a lot with a few $billion, especially when followed by $trillion of quant hedge funds. It's a known fact that the market went to the sky on January 31st and the largest trend-following bots followed. How else did it go so high? Did you do this? Or everyone was smoking something?
    And it's also a fact that all this was followed by a huge sell-off in February, again followed by trend-following bots, and then the wide-spread panic. Or how else did this selloff start? Did you do this? Or 100 hedge funds started to smoke something all at the same time?
    It's also a fact that David Casner's team made $200 million on Feb 5th. Did he just smoke something and cash fell out of the sky? Right.
    I'm going back to smoking my own stuff.
    Last edited: Aug 26, 2018
    beginner66 likes this.
  5. ajacobson


    It's affectionately referred to as carpet bombing when you lift as many SPX strikes as possible.
  6. guru


    BTW, big money is no longer traded by hand. So if you work as a quant or programmer at Goldman, Citadel, etc - now your only job is to game other trading bots, including studying their behavior and responses to your actions if you have sufficient influence on the market. And if someone discovers how/if they can trigger a selloff, the rest is just execution. It will happen again because obviously selloffs do happen and therefore are triggered by something. And someone still makes big pile of money, while smoking stuff.
    Last edited: Aug 26, 2018
  7. sle


    We are talking some random numbers here. A few billions to manipulate S&P on medium timeframe? Do you really think that quant funds (about 750 billion in total AUM, vast majority with a market neutral mandate) can move a 20 trillion dollar market by 7%? More so, do you really think the index vol desk of Goldman Sachs could? Granted, they are smart people (I know the senior guys personally), but magicians they are not.

    The January move had nothing to do with manipulation, just like houses going to the sky in 2008, bitcoin hitting 20 thousand or tech stocks going to the stars in 2000. Everyone was smoking something, indeed.

    How exactly do you envision a single desk or a single fund (mine, Dave's or any other) precipitating a selloff in S&P? What would be the risk/reward for such a manipulation for a single player? Remember, we are not talking about the Elders of Zion who yearn for global domination at any cost.

    Every index desk on the street made a ton of money on Feb 5th, GS included. Every sane vol hedge fund and/or vol PM (myself included), made a lot of money. First of all, someone had to be long all the vol that retail was selling. Second of all, there was a lot to be done on the day (such as selling vol to eager buyers).
  8. sle


    Actually, for shits and giggles, let's assume that they are trying to do that and estimate the required risk and capital. Back of the envelope, since I am enjoying the great outdoors. Market impact roughly follows the square of volume rule - impact = daily_vol * sqrt(fraction of volume). Obviously, the impact is muted for small volume fractions and a lot more extended for large volume participations (i.e. trading 1% of expected volume is likely to produce no impact and trading 100% of ADV is likely to produce much higher impact).

    (a) Manipulating spooz. Spooz trade about 500k to a million contracts a day (OTOH), so 100 billion dollars per day and daly volatility is approximately 1% plus or minus. So one yard worth of manipulation gives you whopping 10bps of impact. You can go from there. IMHO, the only people who have the capacity to manipulate something like S&P (which is, in essence, the whole US equity market) is the Fed, the US treasury etc.

    (b) Manipulating vix futures (far more likely). The front futures trades some 100k per day with a vol of 0.8 vega units or so per day. Front was around 13 on Friday, so let's say to get the event "primed" you need a 5 point move (so 5 standard deviations, for simplicity). Trading a 10-20k worth of futures (10-20 million in vega) would probably do the trick.
    guru likes this.
  9. guru


    Assuming that most of the stock market is now traded by computers, the AUM of quant funds wouldn't matter. So regardless of the 20 trillion market, it was moved 7% by whatever trading was done, of which 75%+ could be done by computers.
    The risk/reward would be that if you'd decide to exit the market simply because you thought its overvalued, you could do this in a big way vs regular way. Basically you'd want to be the first at the exit and make money while running.
    But, I'm having some fun with this while smoking, because when people want conspiracies then give it to them. While you have to be creative and exercise your brain if you want to play the market.
  10. sle


    Well, sure, you can trigger a selloff. You just sell a lot of something. It's been done before. The only problem is that if you are triggering a selloff in something, you need to be able to profit from it more than you're risking by "triggering a selloff". Think price impact vs profit - such a strategy would only work if I am manipulating something illiquid that somehow effects something else where I am carrying a large position. For example, imagine that you the ability to manipulate the live cattle market (e.g. you are a large farming conglomerate), you can go long a lot of cattle futures and force non-farmers into delivery.

    Most of the equity is transacted by computer, but that does not mean that the trading decisions are made by the computer. Think of it this way. HFTs (who are mostly market makers) are truly "autonomous", so they compose 50-70% of the volume just by simply crossing longer term buyers and sellers. However, the decision to take a position (long-term long or short) in any given stock is still predominantly human.

    All of HFTs and most of other quant strategies are market neutral, so there is very little probability that it was computers that moved the market. On the other hand, it is very probable that automated or simple rule-based selling/rebalancing programs contributed a lot on the event day.

    PS. oh my God, you were taking a piss this whole time and I fell for it...
    Last edited by a moderator: Aug 26, 2018
    #10     Aug 26, 2018
    TommyR and guru like this.