NaughtyPines

SHORT VIX DERIVATIVE PLAYS: GIVE THEM TIME TO WORK OUT

AMEX:VXX   IPATH S&P 500 VIX SHORT TERM FUTURES TM ETN
An interesting article on shorting the VIX             and VIX             derivatives: http://www.marketwatch.com/story/bew...ick-2015-09-11

In a nutshell, backwardation occurs (which only applies to VIX             derivatives, not to the VIX             itself) and this can "derail" a short VIX             derivative play that is not given enough time to play out and for contango to kick in and start its inevitable erosion of the underlying, whether it be VXX             , UVXY             , XIV             (inverse), or SVXY             (inverse).

And although this only shows contango/backwardation for the years 2007-2012, one theme is evident and that is that the market is in contango the vast majority of the time (on average, >75% of the time): http://www.cboeoptionshub.com/2012/1...2-11-25-10-04/

In essence, then, the caveat to shorting VIX             derivatives in reliance             on contango being a constant on top of VIX             mean reversion really should be a caveat against shorting and assuming that it will work out "immediately" or even "fairly quickly" (relative terms, I know).

The practical crux of this is that if you short VXX* during a VIX             >20 spike with, for example, a short call vertical, and it doesn't break your short call as you approach expiry, well, roll it out for duration to a later expiry and give it more time to work out. After all, history says that for >75% of the time, contango will be on your side, even if you have to wait a little longer than you'd like for it to have the desired effect ... .

* -- Alternative plays would be to short UVXY             with a short call vert, long SVXY             with a long put vert (it's an inverse), or go long XIV             (it's not optionable; you'll just be stuck with stock). With XIV             , since you'll be holding long stock, you're only option is to "wait it out."
DE Deutsch
EN English
EN English (UK)
EN English (IN)
FR Français
ES Español
IT Italiano
PL Polski
SV Svenska
TR Türkçe
RU Русский
PT Português
ID Bahasa Indonesia
MS Bahasa Melayu
TH ภาษาไทย
VI Tiếng Việt
JA 日本語
KO 한국어
ZH 简体中文
ZH 繁體中文
AR العربية
HE עברית
Startseite Aktien-Screener Devisen-Screener Krypto-Screener Wirtschaftskalender So funktioniert es! Chartmerkmale Hausregeln Moderatoren Webseite & Brokerlösungen Widgets Stock Charting Bibliothek Feature-Anfrage Blog & Nachrichten FAQ - Häufige Fragen & Antworten Hilfe & Wiki Twitter
Profil Profileinstellungen Konto und Abrechnung Meine Support Tickets Support kontaktieren Veröffentlichte Ideen Followers Ich folge Private Nachrichten Chat Abmelden