My @Quora comment on an answer to What does it mean to short the volatility index?
My @Quora comment on an answer to What does it mean to short the volatility index? :
My @Quora comment on an answer to What does it mean to short the volatility index?
Get a better bad idea
If You ask this question, it means one thing: You are an amateur and You are not worthy of trading it.
VIX is one of the hardest instruments to make money on. I know only one person who can make money out of VIX, my ex-boss. That is not because he is a spectacular investor (sorry dude). That is only because VIX is the ultimate mean reverting instrument. It is like Harry Potter’s philosopher’s stone. Only those who are pure mean reverters at heart can touch it. The rest, they may suffer from some reverse Midas curse, they touch it and they turn to sh!t…
I have watched the skew on it [silently swallowing my saliva] . It mean reverts by definition. This means You Long it when no-one wants it and You sell it when people panic. OK, easy so far. The problem is how do You size it and where do You stop it ?
My ex-boss showed me how he does it. He milks it well on his PA account. He has tripled his size, but it was funny to watch how scared he got when i asked him if he would like to do it as a job. He said no 8 times in a row, waving hands and getting all agitated (he had to be sedated with some Pinot Noir thereafter), and the guy tripled his account… I can’t do it and I am a professional short seller: Babylon on the markets like now, and I am ridin’ that bus (so much for slow humble start…) . But VIX you said, why don’t you go first ? I am too scared
+1; this is pretty much the consensus view among successful structured index vol traders I’ve known. Also, you really want to do this on a portfolio and cross-market basis if possible for diversification’s sake. Some people use various flavors of vega weighting but the most successful ones I’ve known use simple, old school breakeven and max loss analyses.
So trading the VIX is stupid? Okay. What about trading regular european options? Where do I go to learn to short sell? How can I trade individual stock options on the Taiwan & Korean stock exchanges? Nagoya Stock Exchange? There are A lot of opportunities in overlooked exchanges.
Hello Gopher, I have been invited to post a trading journal on Whotrades. I will post signals, my trades on my website: Alpha Secure Capital | Alpha Secure Capital as well. I am honest about the stuff that I trade, how I do it, how i approach risk and so on. Is this the kind of stuff You would like to read ? Trading Journal 2016/01/20
Yesterday I went Long IAU, the ETF for gold. I go out of my way not to know what i trade but when something comes with a Buy signal amidst capitulation, something tells me the inverse correlation force is strong with that one. It turned out to be gold. OK, so I placed a limit order and then realised i could do something better with the remainder risk budget. I bought April calls OTM 12 for 0.20. There is a lot of theta there still. Plus, with my trading style, I will sell some underlying to cover the cost. In fact ETF needs to move less than 3% to get there. OTM reward to risk is 7:1 + underlying to compensate. Well, it has a lot of kick for not much. Doe sit help ?
Now if you want o short using options, I would buy put spreads or sell call spreads. It caps the risk neatly. You may even go as far as 3 by so as to have a bit more juice. Makes sense ?
And yes VIX is stupid for those reasons:
- Let’s say You short around 40. Every now and then it shoots up to 60. Well You are forced to close unless You wait until it comes down again.
- Meanwhile, it drills a very visible hole in your portfolio
- Since the key to raising AUM is to perform when no-one else does and You just got bitch slapped twice, investors rightfully conclude You don’t know what You are doing and pull the plug.
- OK, round 2. You got burned once and decide to wisen up next time: size position a little more conservatively Well, if it does not hurt in the first place, how could it contribute then ? It is not a hedge, it is a “feel-good hedge”
- Meanwhile, it is expensive
- Bottom line: get a better bad idea
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