Great video once again Brent, keep them coming..! I'm eagerly waiting for you to publish the Aggressive Vol Strategy. I have subscribed, upvoted, and told a bunch of friends and family about you. There is a natural draw due to your straightforwardness, transparency, and honesty. The free trial period helps too. I see no reason why this channel doesn't blowup.
Thanks so much for the support, appreciate it! I'll get to the Aggressive Vol video soon. The strategy itself isn't new at all, I've been using it since Jan 2012 and it's been in the TPS before. It even has its own video from a few years ago, but I made that video private when I removed Aggressive Vol from the portfolio. Now that it's going back in as a riskier leveraged alternative, I could just make that video public again, but I prefer to re-do it. Update it a little bit. Not that I'm good at making videos or anything, but I'm better now than then so I'll just remake one soon.
Great Video ! a tiny correction, the UVXY is 2* leveraged according to the label at 2:40, but it is 1.5* according to what you said along side it Thanks Brent !
Great video as always. Would you say there is a possibility for VXX to be delisted (just like recently TVIX)? I am guessing since it is not leveraged the risks should be minimal
Issuers can delist something anytime they want, so there's always the chance of something like that. Realistically, probably not because it's a 1x long vol product so chances are good it'll be around for the 30 year shelf life. As to delisting due to excessive loss, also not likely but it is important to know that VXX has the same potential for termination if there's a > 80% single day drop. Since it's a long volatility ETF the 80% drop would have to come from an epic volatility crush. The only times that's even practically possible is right after a major volatility spike. For example, on February 5th as we know the XIV was terminated due to a > 80% single day loss. Because volatility spiked so high, it was technically possible for the long volatility products to terminate the next day when volatility crashes back down. But since VXX is only 1x leverage factor, that's nearly impossible to imagine. It was far more likely on something like TVIX because it was 2x leverage. Long story short, I suspect VXX will be around a long time.
Great video as always, Brent! I'm curious what you (and other commenters) think of combining short VXX position with a long call on VIX to hedge against the "VIX rises to meet M2" and "market tanks" scenarios, or even a delta-neutral combination of VIX and VXX options that's purely a play on VX30-VIX regressing to the mean.
For me personally, I don't believe in hedging. I've never liked the math behind pitting one position against another, which is essentially what hedging is. One position partially offsetting another. For me, I just prefer being tactical with my strategies, and then if something is higher risk you just reduce the exposure. For example if someone wanted to take a 20% position in volatility but they thought it was too risky, they'd maybe buy some hedges to offset some of that risk. Well for me, I'd just reduce the 20% to something more manageable without the hedge :)
@@VolatilityTradingStrategies Thanks for the detailed answer! Managing risk via the position size instead of hedging is definitely in line with what I've picked up about your investing philosophy from the videos. I'll take this perspective into account when considering hedging in the future.
Brent, another brilliant video for sure. I understand how the VIX spot price can move up to and converge with the M1 VIX futures price, since the VIX is calculated from an open free market (buyers-and-sellers of SPY options). But I was wondering how the M1 VIX futures price can be 'forced down' towards exactly the VIX spot price? After all, this M1 level is also determined by an open free market (buyers-and-sellers of VIX futures). Does convergence then come from the fact that the price of the M1 at expiration must always be the same as the VIX spot price, knowing there is no remaining time value in these futures?
Yes exactly, at expiration the entire time value is gone from the futures and it will just be the VIX for that moment. Then it expires and the cycle starts fresh with new futures that still have remaining time value and uncertainty.
The 2x text was wrong yes, but at least I said it right so hopefully people get the point and realize it was a typo by me. Why won't RUclips allow some kind of "within 24 hours" edit button!
Thank you for the video. Two questions... 1) when are you say VIX, do you mean it is calculated on the basis of options or futures? It seems to me that the difference in price occurs because the implied volatility calculated by options in money now is much less than out of the money. 2) where can I download the chart data M1 - VIX and M2 - VIX?
1) VIX is calculated based on S&P 500 options activity. If you want to dig into in the money vs out of the money, there's a couple things you can consider. First, the VIX index is based on a variety of ITM and OTM options on the S&P 500. The VOLI index is only at the money options on the SPY. So if you subtract VOLI from the VIX you're left with a good representation of OTM activity. The other way you can do it is by using the TDEX and SDEX indexes which are also trying to show OTM activity. 2) I'm not sure if you can get the historical VIX futures data for free so you may have to pay for that. For the VIX you can just download it for free off anywhere, even Yahoo Finance. Then you'd want to put both of those data sets into a spreadsheet so you can easily chart it and draw conclusions based on it.
Hi, Brent, thanks for this, but tbh this video doesn't explain the "unless" part very clearly which is the cliffhanger of the title. Unless what? The VX30 goes up, down? You mention it is important to watch...but what are we watching for? Or unless the gap between M1 and the VIX gets smaller? We have volatility from the election? It isn't very clear in my opinion. You point us to your other videos but I am left confused. Personally I would have liked more explanation on what we are looking for in the VX30. Thanks for your insight, it's valued as always!!!
Thanks for the feedback, sorry I didn't clarify that more. The "unless" part is just, the market can easily tank here and all bets are off. I didn't want to spend any time on that because I assumed it was clear, but I can see now that maybe it wasn't. The VIX futures are juiced for profit here if everything behaves normally. But IF the market goes down, short vol will lose money.
I noticed that, for some reason I put 2x in the text. I HATE that because you can't edit videos once they are up. I could fix that in 10 seconds if RUclips could edit :(
Another thing is, actually we don't need VX30 to go down to make profit. The high roll yields is likely to cause severe decay of vxx which maybe be the source of profit.
Roll yield isn't the source of profit, that's just the potential in the structure. Profit comes from the actual movement and changing value of the futures the ETPs hold. It's the same as contango. Contango itself is not a source for any profit, it's just an indication that IF the market remains calm then it's a representation of potential for short vol. But all actual changes in VXX value happen due to actual changes in the value of the futures.
@@VolatilityTradingStrategies yes, agree. I think we are talking about the same thing using different terms. High contango%/roll yields is definitely one of sources of profit of shorting VXX/UVXY. Only in high contango% condition, the daily change of near vix futures for VXX/UVXY will cause decay. If the vix term structure is in back condition, the swap will push vxx/uvxy price higher.
@@cheers724 Not to nitpick, but one small thing (which is kind of a big thing to be honest) When you say the swap will push VXX/UVXy price higher, the actual rolling of the contracts has no effect at all on the price of the VXX. It literally is only because of the changes in the futures values. Contango itself, roll yield itself, or the buying and selling of one contract for another have nothing to do with the NAV. It's a common misconception that when in contango, they are buying and selling two different priced futures and that's why it changes value. It's actually not that at all, the roll / swap of contracts is done at net zero change in value.
@@VolatilityTradingStrategies yes, good one, you are right. It is difficult to explain such a complex scenario in short sentences in the comments. The swap itself of course will not change the price of VXX/UVXY. What I mean is, in back condition, if we keep selling nearest future and buying second nearest future, the back term structure will push the price of the "virtual" 1 month future to a higher price and vice versa for contango condition. So this is why I say "contango%" is one of the sources of profit for shorting VXX. This is where I am from, sorry for the confusion.
great content Brent ! is there a graph for VX30 or I need to calculate it manually? can you explain what should be the thought depending on the main levels of outcomes of VX30 based on the time left to expiration (first day of the cycle, mid-term , last day)
You'll have to calculate and track it yourself as I'm not aware of any public resources that has it available. As to what it means, that will depend on the investing philosophy of the individual trader. Some people like me who are more trend following do have success shorting volatility when roll yield is high. Others claim to have success being contrarian with it and trying to use it as a timing mechanism for long volatility. I say "claim" though because as you've probably noticed, very very few people actually show any performance results, so take what people who don't post performance with a very large grain of salt :)
I'm sure you've covered this sufficiently somewhere, but I'm looking at the VXX prospectus ("closing indicative value" and "daily index factor"), which reads as if the daily value of VXX is calculated as PRIOR_VXX_PRICE * (M1_M2_WEIGHTED_AVG / PRIOR_M1_M2_WEIGHTED_AVG) (I think). In other words, the calculation is essentially VX30 -> VX30 for consecutive days. But then I'm looking at your blog post on the VXX crush level and the calculated number is based on the VX30:VIX roll yield, which gives a much bigger number than what I'm estimating as of today's futures curve (different numbers, but as you said, the current curve is at near all-time extremes). Am I misinterpreting the VXX crush concept?
I think it's just two slightly different ways of looking at the same thing. For the prospectus that's showing literally how to calculate the value of VXX, which of course is just a formula and can be done. What I'm showing with the VXX Crush level metric is an estimation of future daily decay of VXX based on current metrics. So the prospectus is showing what you'd consider a "realized" current NAV, and I'm showing a future expected "implied" VXX decay factor.
@@VolatilityTradingStrategies Maybe I'll send you an email, because what I'm attempting to calculate is VXX crush (i.e., tomorrow minus today), but coming up with something different. Unrelated, but have you ever thought about doing a video on Q4 2018? You've talked a lot about Volpocalpyse and the 2020 crisis, but just from flipping through VIX Central for that period, futures were moving in and out of contango every few days it looks like VIX-VOLI went in the opposite direction of what it did in 2020, but I see your strategies didn't really take a hit. Maybe there's some proprietary stuff there, but it would be interesting to hear your take on it.
Just to follow up, this article cleared up my confusion: mrtopstep.com/vix-strategies-roll-yield-youre-thinking-wrong/. I was making the mistake he mentioned, but in a different way - I was trying to calculate a weighted average of the contract prices between days rather than taking a weighted average of gain-loss driven by the slope of the curve. On the Q4 2018 question, I saw that you did talk about it some at a higher level and also thought there were some mixed signals in terms of the VIX being lower than expected. It would still be interesting to hear your thoughts on the contango whipsaws and differences with other high volatility periods.
@@FreeMarketSwine Q4 2018 was definitely an interesting period, as all market crashes are. But as far as trading it, I found it to be pretty smooth just because the signals I look at were so clear. We went from having no reason not to be long the market and short vol, to the complete opposite in about 2 days. So the only real bleed during that period was the single day where metrics were changing. Otherwise we went from aggressive to safety pretty fast. To me the more interesting period started on December 24th 2018 with the insane market recovery. My strategies have caught every drawdown and we've avoided all trouble for 9 years, but something that I spend quite a bit of time on is trying to find ways to get back into the trades after the crash. If there's a weakness in my portfolio that's it. So October 2018 was fine, but January 2019 I was still on the sidelines because volatility metrics stayed very elevated long after the market started to recover.
A big problem the shorters face is, by the time M1 starts coming down, the weight will be small. September was 26.23 when it became the front month, now over 28. If M1 holds high until the very last minute, it won't move down VX30 much as majority of the weight has already shifted onto the back month of sky-high October. At the end of the day, the VIX has to come down. No one really knows why it's so high vs historical volatility.
That falls in the category of predicting the future, and I don't do that in my trading. I just look at the metrics as they actually are and try not to make any of those assumptions. You saying that by the time M1 starts going down it'll be late in the cycle. Well, it could easily start happening tomorrow right? Nobody knows, so I don't include market predictions in my metrics. I think we're all wrong just about as often as we're right, so gut instincts aren't really useful in trading. I prefer to stick to the math :)
Yeah I didn't mean to suggest predicting when M1 starts rushing down, ultimately VIX has to come down as I mentioned. We're just about crossing the 50% mark of September cycle, so more and more we are depending on how the sky-high M2 moves, and less and less of M1. Which means the trade requires a lot of patience, as October has been high for months and I don't expect it to rush down any time soon.
@@theguvnr3364 That's true, it'll move to holding more of M2, but that's also at the 100% percentile so both of those are saying the same thing. It doesn't mean it's going to happen though, the market is free to crash anytime. But if this persists much longer with no follow through in the S&P, then those futures and the VIX have to start coming down.
Well I don't do the direct investing advise stuff so I can't really answer that one. Like I tried to explain in the video, the current structure represents a potentially good set up, but the actual result is still unknown. We'll have to wait and see if the market remains stable enough for that gap between the futures and VIX to close.
Great video but I'm not getting something: If futures are much higher than the current vix, then wouldn't it make sense to go long vol (eg VXX) to capture some of the upward roll?
I suppose that depends on whether you're trying to be a contrarian, or just following the trend. The VIX futures being higher than the VIX is definitely a potential positive for the short vol trade (short VXX) for any trend followers, which I am in that camp. But if you're the contrarian type and think that when the market is in contango that's a signal that it's going to reverse and go up, then I guess sure. It's not what I believe though so I can't really say I think that's a good idea. It's nearly impossible to predict volatility spikes, and I don't know many contrarians that are profitable long term. You'd probably have more luck not trying to fight the VIX term structure, just go with the flow. Kind of like, don't fight the Fed. Same idea, you can easily go broke trying to predict when this market will finally stop reacting positively to the insane Fed interference. Best not to fight it...
@@VolatilityTradingStrategies thanks for the reply! I mixed up my directions - I forgot vxx is based on m1 and M2 and thought you could buy vix to capture the upwards roll yield. But going short vol Is really capturing downward roll yield of M1 and M2 converging to the VIX
Both, it's just the difference between point moves and percentage moves. I use (VX30 - VIX) / VIX far more often though if that helps you decide. I used VX30 - VIX in the video to keep it consistent with the previous two charts and points I made. But yeah, I'd use the percentage over the VIX, essentially the "roll yield"
If you're a chart / TA person that's fine, I don't have any issue with people doing their TA on most securities. If it works for you and leads to long term profit, go for it :) However, the VIX is not tradable and it is purely a mathematical representation of S&P 500 options activity. TA on the VIX, and looking at chart patterns on the VIX isn't useful information. VIX supply and demand doesn't exist in the same way it does for stocks/indexes, and it's just hedging / spec behavior that wouldn't mean anything even if you did have the full list of all positions. We still can't know what those positions are part of which trades, and whether they are bullish or bearish. If a bunch of people buy VIX calls, typically people would say that's bearish? Well what if it's just throw away hedges against a massively long stock portfolio? Then it's no longer bearish is it, it's bullish. We have no idea what positions and purpose those S&P 500 options the VIX is measuring are actually part of, and can't ever know that. Only the person managing the book of trades knows that. So TA on the VIX is a no go :)
Does the price for VXX options still operate like regular securities? Say most of the November volatility is already priced in for these upcoming months, would 2021 call options for VXX still be a viable hedge? despite the decay.
Do you mean are they independent of each other? If so then yes, the 2021 call options will have very little effect from the upcoming election so they should behave normally. Now just know, volatility is pretty high right now so hedging will be expensive no matter what you do. But yeah if you wanted to hedge in VIX futures and didn't want to pay the insane election premium baked in right now, you could push it out past that.
@@VolatilityTradingStrategies thanks for answering, yea it's weird how IV goes up along with the strike price, so far OTM calls aren't that much cheaper than the ones closer to the strike. While not volatility, SQQQ and SPXS are both great inverse ETFs that I use to hedge along with VXX
VTS - Brent Osachoff thanks Brent, I wound also suggest to bifurcate by absolute level of vix. E.g: assuming the same gap, I would imagine vx30 coming down to vix more often if vix is at 12 vs if vix is already at 20. That is my hutch but only data will prove one way or another.
Well, going long volatility is one of the most unpredictable positions that traders can take. Obviously there is large upside if you happen to get the timing right. On the flip side, the majority of the time these ETFs are going down, so the odds are not in favour of long volatility positions. It's an unbalanced risk reward profile. Potential for large return, at the expense of a low probability of success. I can't say whether it was good or bad, I can just say it's not something that I personally would do. But I wish you luck on it :)
I think I understand this but I assume with what has happened since this video was released that this would have been a bad trade because the VIX index has moved up and beyond the M1?
Yes the VIX futures went up substantially, so the VXX also went up and anybody short volatility would have taken some losses. That's the "unless" part about the video. The probability of success short vol was high, but probability isn't a guarantee and those futures can rise. It's a freely traded market, so it's just up to the probability, and in this case futures went way up.
@@VolatilityTradingStrategies Wouldn't you normally see this huge gap between VIX and M1 when the SPY is overbought and people expect a correction in the near future thus high M1?
Great video once again Brent, keep them coming..! I'm eagerly waiting for you to publish the Aggressive Vol Strategy. I have subscribed, upvoted, and told a bunch of friends and family about you. There is a natural draw due to your straightforwardness, transparency, and honesty. The free trial period helps too. I see no reason why this channel doesn't blowup.
Thanks so much for the support, appreciate it! I'll get to the Aggressive Vol video soon. The strategy itself isn't new at all, I've been using it since Jan 2012 and it's been in the TPS before. It even has its own video from a few years ago, but I made that video private when I removed Aggressive Vol from the portfolio. Now that it's going back in as a riskier leveraged alternative, I could just make that video public again, but I prefer to re-do it. Update it a little bit. Not that I'm good at making videos or anything, but I'm better now than then so I'll just remake one soon.
Great Video !
a tiny correction, the UVXY is 2* leveraged according to the label at 2:40, but it is 1.5* according to what you said along side it
Thanks Brent !
I know, I HATE making those little mistakes because of course I can't edit the video now that it's uploaded. My oversight will be there forever.....
@@VolatilityTradingStrategies In fairness, seems to me the change in exposure / leverage was from 2 to the current 1.5 so 2 had been correct.
Great video as always. Would you say there is a possibility for VXX to be delisted (just like recently TVIX)? I am guessing since it is not leveraged the risks should be minimal
Issuers can delist something anytime they want, so there's always the chance of something like that. Realistically, probably not because it's a 1x long vol product so chances are good it'll be around for the 30 year shelf life. As to delisting due to excessive loss, also not likely but it is important to know that VXX has the same potential for termination if there's a > 80% single day drop. Since it's a long volatility ETF the 80% drop would have to come from an epic volatility crush. The only times that's even practically possible is right after a major volatility spike. For example, on February 5th as we know the XIV was terminated due to a > 80% single day loss. Because volatility spiked so high, it was technically possible for the long volatility products to terminate the next day when volatility crashes back down. But since VXX is only 1x leverage factor, that's nearly impossible to imagine. It was far more likely on something like TVIX because it was 2x leverage.
Long story short, I suspect VXX will be around a long time.
Great video as always, Brent!
I'm curious what you (and other commenters) think of combining short VXX position with a long call on VIX to hedge against the "VIX rises to meet M2" and "market tanks" scenarios, or even a delta-neutral combination of VIX and VXX options that's purely a play on VX30-VIX regressing to the mean.
For me personally, I don't believe in hedging. I've never liked the math behind pitting one position against another, which is essentially what hedging is. One position partially offsetting another. For me, I just prefer being tactical with my strategies, and then if something is higher risk you just reduce the exposure. For example if someone wanted to take a 20% position in volatility but they thought it was too risky, they'd maybe buy some hedges to offset some of that risk. Well for me, I'd just reduce the 20% to something more manageable without the hedge :)
@@VolatilityTradingStrategies Thanks for the detailed answer! Managing risk via the position size instead of hedging is definitely in line with what I've picked up about your investing philosophy from the videos. I'll take this perspective into account when considering hedging in the future.
Brent, another brilliant video for sure. I understand how the VIX spot price can move up to and converge with the M1 VIX futures price, since the VIX is calculated from an open free market (buyers-and-sellers of SPY options). But I was wondering how the M1 VIX futures price can be 'forced down' towards exactly the VIX spot price? After all, this M1 level is also determined by an open free market (buyers-and-sellers of VIX futures). Does convergence then come from the fact that the price of the M1 at expiration must always be the same as the VIX spot price, knowing there is no remaining time value in these futures?
Yes exactly, at expiration the entire time value is gone from the futures and it will just be the VIX for that moment. Then it expires and the cycle starts fresh with new futures that still have remaining time value and uncertainty.
Such amazing content and so happy to be a member of the VTS community! Got the mailshots also to the right email address many thanks for sorting that
Thanks for the kind words! Glad we solved the email issue, spam filters are annoying these days :)
At 2:30, you said it right UVXY is 1.5x leverage but the screen showed 2x. I was first confused then figured shortly after.
The 2x text was wrong yes, but at least I said it right so hopefully people get the point and realize it was a typo by me. Why won't RUclips allow some kind of "within 24 hours" edit button!
Thank you for the video. Two questions...
1) when are you say VIX, do you mean it is calculated on the basis of options or futures?
It seems to me that the difference in price occurs because the implied volatility calculated by options in money now is much less than out of the money.
2) where can I download the chart data M1 - VIX and M2 - VIX?
1) VIX is calculated based on S&P 500 options activity. If you want to dig into in the money vs out of the money, there's a couple things you can consider. First, the VIX index is based on a variety of ITM and OTM options on the S&P 500. The VOLI index is only at the money options on the SPY. So if you subtract VOLI from the VIX you're left with a good representation of OTM activity. The other way you can do it is by using the TDEX and SDEX indexes which are also trying to show OTM activity.
2) I'm not sure if you can get the historical VIX futures data for free so you may have to pay for that. For the VIX you can just download it for free off anywhere, even Yahoo Finance. Then you'd want to put both of those data sets into a spreadsheet so you can easily chart it and draw conclusions based on it.
Hi, Brent, thanks for this, but tbh this video doesn't explain the "unless" part very clearly which is the cliffhanger of the title. Unless what? The VX30 goes up, down? You mention it is important to watch...but what are we watching for? Or unless the gap between M1 and the VIX gets smaller? We have volatility from the election? It isn't very clear in my opinion. You point us to your other videos but I am left confused. Personally I would have liked more explanation on what we are looking for in the VX30. Thanks for your insight, it's valued as always!!!
Thanks for the feedback, sorry I didn't clarify that more. The "unless" part is just, the market can easily tank here and all bets are off. I didn't want to spend any time on that because I assumed it was clear, but I can see now that maybe it wasn't. The VIX futures are juiced for profit here if everything behaves normally. But IF the market goes down, short vol will lose money.
one correction, uvxy is 1.5 times now, after Feb 5 2018 vol tragedy. You said it right but the subtitle is wrong.
I noticed that, for some reason I put 2x in the text. I HATE that because you can't edit videos once they are up. I could fix that in 10 seconds if RUclips could edit :(
Another thing is, actually we don't need VX30 to go down to make profit. The high roll yields is likely to cause severe decay of vxx which maybe be the source of profit.
Roll yield isn't the source of profit, that's just the potential in the structure. Profit comes from the actual movement and changing value of the futures the ETPs hold. It's the same as contango. Contango itself is not a source for any profit, it's just an indication that IF the market remains calm then it's a representation of potential for short vol. But all actual changes in VXX value happen due to actual changes in the value of the futures.
@@VolatilityTradingStrategies yes, agree. I think we are talking about the same thing using different terms. High contango%/roll yields is definitely one of sources of profit of shorting VXX/UVXY. Only in high contango% condition, the daily change of near vix futures for VXX/UVXY will cause decay. If the vix term structure is in back condition, the swap will push vxx/uvxy price higher.
@@cheers724 Not to nitpick, but one small thing (which is kind of a big thing to be honest) When you say the swap will push VXX/UVXy price higher, the actual rolling of the contracts has no effect at all on the price of the VXX. It literally is only because of the changes in the futures values. Contango itself, roll yield itself, or the buying and selling of one contract for another have nothing to do with the NAV. It's a common misconception that when in contango, they are buying and selling two different priced futures and that's why it changes value. It's actually not that at all, the roll / swap of contracts is done at net zero change in value.
@@VolatilityTradingStrategies Well explained...
@@VolatilityTradingStrategies yes, good one, you are right. It is difficult to explain such a complex scenario in short sentences in the comments. The swap itself of course will not change the price of VXX/UVXY. What I mean is, in back condition, if we keep selling nearest future and buying second nearest future, the back term structure will push the price of the "virtual" 1 month future to a higher price and vice versa for contango condition. So this is why I say "contango%" is one of the sources of profit for shorting VXX. This is where I am from, sorry for the confusion.
great content Brent ! is there a graph for VX30 or I need to calculate it manually? can you explain what should be the thought depending on the main levels of outcomes of VX30 based on the time left to expiration (first day of the cycle, mid-term , last day)
You'll have to calculate and track it yourself as I'm not aware of any public resources that has it available. As to what it means, that will depend on the investing philosophy of the individual trader. Some people like me who are more trend following do have success shorting volatility when roll yield is high. Others claim to have success being contrarian with it and trying to use it as a timing mechanism for long volatility. I say "claim" though because as you've probably noticed, very very few people actually show any performance results, so take what people who don't post performance with a very large grain of salt :)
I'm sure you've covered this sufficiently somewhere, but I'm looking at the VXX prospectus ("closing indicative value" and "daily index factor"), which reads as if the daily value of VXX is calculated as PRIOR_VXX_PRICE * (M1_M2_WEIGHTED_AVG / PRIOR_M1_M2_WEIGHTED_AVG) (I think). In other words, the calculation is essentially VX30 -> VX30 for consecutive days. But then I'm looking at your blog post on the VXX crush level and the calculated number is based on the VX30:VIX roll yield, which gives a much bigger number than what I'm estimating as of today's futures curve (different numbers, but as you said, the current curve is at near all-time extremes). Am I misinterpreting the VXX crush concept?
I think it's just two slightly different ways of looking at the same thing. For the prospectus that's showing literally how to calculate the value of VXX, which of course is just a formula and can be done. What I'm showing with the VXX Crush level metric is an estimation of future daily decay of VXX based on current metrics. So the prospectus is showing what you'd consider a "realized" current NAV, and I'm showing a future expected "implied" VXX decay factor.
@@VolatilityTradingStrategies Maybe I'll send you an email, because what I'm attempting to calculate is VXX crush (i.e., tomorrow minus today), but coming up with something different.
Unrelated, but have you ever thought about doing a video on Q4 2018? You've talked a lot about Volpocalpyse and the 2020 crisis, but just from flipping through VIX Central for that period, futures were moving in and out of contango every few days it looks like VIX-VOLI went in the opposite direction of what it did in 2020, but I see your strategies didn't really take a hit. Maybe there's some proprietary stuff there, but it would be interesting to hear your take on it.
Just to follow up, this article cleared up my confusion: mrtopstep.com/vix-strategies-roll-yield-youre-thinking-wrong/. I was making the mistake he mentioned, but in a different way - I was trying to calculate a weighted average of the contract prices between days rather than taking a weighted average of gain-loss driven by the slope of the curve.
On the Q4 2018 question, I saw that you did talk about it some at a higher level and also thought there were some mixed signals in terms of the VIX being lower than expected. It would still be interesting to hear your thoughts on the contango whipsaws and differences with other high volatility periods.
@@FreeMarketSwine Q4 2018 was definitely an interesting period, as all market crashes are. But as far as trading it, I found it to be pretty smooth just because the signals I look at were so clear. We went from having no reason not to be long the market and short vol, to the complete opposite in about 2 days. So the only real bleed during that period was the single day where metrics were changing. Otherwise we went from aggressive to safety pretty fast. To me the more interesting period started on December 24th 2018 with the insane market recovery. My strategies have caught every drawdown and we've avoided all trouble for 9 years, but something that I spend quite a bit of time on is trying to find ways to get back into the trades after the crash. If there's a weakness in my portfolio that's it. So October 2018 was fine, but January 2019 I was still on the sidelines because volatility metrics stayed very elevated long after the market started to recover.
A big problem the shorters face is, by the time M1 starts coming down, the weight will be small. September was 26.23 when it became the front month, now over 28. If M1 holds high until the very last minute, it won't move down VX30 much as majority of the weight has already shifted onto the back month of sky-high October.
At the end of the day, the VIX has to come down. No one really knows why it's so high vs historical volatility.
That falls in the category of predicting the future, and I don't do that in my trading. I just look at the metrics as they actually are and try not to make any of those assumptions. You saying that by the time M1 starts going down it'll be late in the cycle. Well, it could easily start happening tomorrow right? Nobody knows, so I don't include market predictions in my metrics. I think we're all wrong just about as often as we're right, so gut instincts aren't really useful in trading. I prefer to stick to the math :)
Yeah I didn't mean to suggest predicting when M1 starts rushing down, ultimately VIX has to come down as I mentioned. We're just about crossing the 50% mark of September cycle, so more and more we are depending on how the sky-high M2 moves, and less and less of M1. Which means the trade requires a lot of patience, as October has been high for months and I don't expect it to rush down any time soon.
@@theguvnr3364 That's true, it'll move to holding more of M2, but that's also at the 100% percentile so both of those are saying the same thing. It doesn't mean it's going to happen though, the market is free to crash anytime. But if this persists much longer with no follow through in the S&P, then those futures and the VIX have to start coming down.
Hello,
1 question because of my poor understanding. In your opinion anyway, Short volatility is good ??? or vxx is good? Thank you for answer.
Well I don't do the direct investing advise stuff so I can't really answer that one. Like I tried to explain in the video, the current structure represents a potentially good set up, but the actual result is still unknown. We'll have to wait and see if the market remains stable enough for that gap between the futures and VIX to close.
Great video but I'm not getting something: If futures are much higher than the current vix, then wouldn't it make sense to go long vol (eg VXX) to capture some of the upward roll?
I suppose that depends on whether you're trying to be a contrarian, or just following the trend. The VIX futures being higher than the VIX is definitely a potential positive for the short vol trade (short VXX) for any trend followers, which I am in that camp. But if you're the contrarian type and think that when the market is in contango that's a signal that it's going to reverse and go up, then I guess sure. It's not what I believe though so I can't really say I think that's a good idea. It's nearly impossible to predict volatility spikes, and I don't know many contrarians that are profitable long term. You'd probably have more luck not trying to fight the VIX term structure, just go with the flow. Kind of like, don't fight the Fed. Same idea, you can easily go broke trying to predict when this market will finally stop reacting positively to the insane Fed interference. Best not to fight it...
@@VolatilityTradingStrategies thanks for the reply! I mixed up my directions - I forgot vxx is based on m1 and M2 and thought you could buy vix to capture the upwards roll yield. But going short vol Is really capturing downward roll yield of M1 and M2 converging to the VIX
Hi Brent, I have a question. We can evaluate vx30 by vx30 - vix and also (vx30 - vix)/vix, which one makes more sense? What do you think?
Both, it's just the difference between point moves and percentage moves. I use (VX30 - VIX) / VIX far more often though if that helps you decide. I used VX30 - VIX in the video to keep it consistent with the previous two charts and points I made. But yeah, I'd use the percentage over the VIX, essentially the "roll yield"
Looking at the VIX chart, it looks like it primed to go up. So to me, it seems that one should go long instead of short.
If you're a chart / TA person that's fine, I don't have any issue with people doing their TA on most securities. If it works for you and leads to long term profit, go for it :) However, the VIX is not tradable and it is purely a mathematical representation of S&P 500 options activity. TA on the VIX, and looking at chart patterns on the VIX isn't useful information. VIX supply and demand doesn't exist in the same way it does for stocks/indexes, and it's just hedging / spec behavior that wouldn't mean anything even if you did have the full list of all positions. We still can't know what those positions are part of which trades, and whether they are bullish or bearish. If a bunch of people buy VIX calls, typically people would say that's bearish? Well what if it's just throw away hedges against a massively long stock portfolio? Then it's no longer bearish is it, it's bullish. We have no idea what positions and purpose those S&P 500 options the VIX is measuring are actually part of, and can't ever know that. Only the person managing the book of trades knows that. So TA on the VIX is a no go :)
Does the price for VXX options still operate like regular securities? Say most of the November volatility is already priced in for these upcoming months, would 2021 call options for VXX still be a viable hedge? despite the decay.
Do you mean are they independent of each other? If so then yes, the 2021 call options will have very little effect from the upcoming election so they should behave normally. Now just know, volatility is pretty high right now so hedging will be expensive no matter what you do. But yeah if you wanted to hedge in VIX futures and didn't want to pay the insane election premium baked in right now, you could push it out past that.
@@VolatilityTradingStrategies thanks for answering, yea it's weird how IV goes up along with the strike price, so far OTM calls aren't that much cheaper than the ones closer to the strike. While not volatility, SQQQ and SPXS are both great inverse ETFs that I use to hedge along with VXX
@@xxblanksxx1 I don't do any hedging in my strategies, but yes I can see that for people that do those 3x leveraged ETFs could be useful.
what happen in the past when the gap was very high? VX30 moves down or vix moves up in subsequent 2 weeks?
That's a great suggestion for me to dig into. I'll add it to the list!
VTS - Brent Osachoff thanks Brent, I wound also suggest to bifurcate by absolute level of vix. E.g: assuming the same gap, I would imagine vx30 coming down to vix more often if vix is at 12 vs if vix is already at 20. That is my hutch but only data will prove one way or another.
i just bought call on the uvxy that expire november... was this a good call?
Well, going long volatility is one of the most unpredictable positions that traders can take. Obviously there is large upside if you happen to get the timing right. On the flip side, the majority of the time these ETFs are going down, so the odds are not in favour of long volatility positions. It's an unbalanced risk reward profile. Potential for large return, at the expense of a low probability of success. I can't say whether it was good or bad, I can just say it's not something that I personally would do. But I wish you luck on it :)
I think I understand this but I assume with what has happened since this video was released that this would have been a bad trade because the VIX index has moved up and beyond the M1?
Yes the VIX futures went up substantially, so the VXX also went up and anybody short volatility would have taken some losses. That's the "unless" part about the video. The probability of success short vol was high, but probability isn't a guarantee and those futures can rise. It's a freely traded market, so it's just up to the probability, and in this case futures went way up.
@@VolatilityTradingStrategies Thanks just trying to understand this alien language. Thanks for the videos and the reply appreciate it.
@@VolatilityTradingStrategies Wouldn't you normally see this huge gap between VIX and M1 when the SPY is overbought and people expect a correction in the near future thus high M1?
Great video. Thanks...
First...? Such good content needs to be seen by more!
Thanks so much!
Appreciate all your work 👏
Appreciate the support!
.....unless
Yup, we seem to have hit a full UNLESS situation the last 2 days...