I have been trading VIX futures for some time now. I was hoping we could start a thread whereby we can highlight ways to profit especially during big numbers and roll trading near expiration Some of the peculiarities that I have noticed regarding this futures: VX futures does have a delta with S&P especially in the short term, negligible in the longer time frame They more often than not tend to price out some event specific vol before the actual event (see solid edge here) Post event/big numbers, vols do come off but not always, also has to do where S&P is moving, but the bias is towards downside Spikes in vols dont let you get executions on any limit buys, more often than not you have lift the market to get into the trade, altogether a beautiful trending product. Also Yen, Gold, Bonds and S&P leading indicators to how sustainable the spikes are. Market stops essential if short vol Rolls performs the best just a week into expiration, especially after big numbers Short term relationship between calendar spreads and first month outright which can be used to improve execution (can either go long VX or short calendar spread to go long vol) Would like to hear more from people who have been trading it for a longer time
Part of the edge that comes from trading these futures unlike any other time series is they tend to be clustered, they exhibit positive serial correlation, hence these autoregressive models do have some alpha for even implied vol forecasting. That being said, my approach is lot less quantitative.
Also, some thing else that I notice typically 90-95% of the time is these markets remain in contango. Part of the reason is most of the times high vol environments are short lived, where more likely to see backwardation. Secondly, vols dont tend to move below certain levels, market prices some premium towards the upside should any uncertainties creep up till expiration. Also some premium is priced in by funds(long only specifically) hedging their long equity portfolios by long VX, hence further out you go more premium is priced in. This is the premium we could explore to trade in form of rolls, as it is coming from price insensitive market participants. Rolls near expiry tend to behave a lot similar to treasury quarterly rolls, where the front month long OI gets transferred to the next month.
vstoxx is 1/10 size of VX vstoxx liquidity blows try vx spreads vs vx spreads, look for patterns trade these full time for yrs good luck
do you trade curve dislocations or expiry specific trends? like what I see trading dislocations can be tricky is you are not aware of what all events are priced in their respective expiries
i find trying to game a curve that has 8 unique parts available my version of fun and interesting. @ 9 handle spot its trying to find stuff obviously.