tag:blogger.com,1999:blog-2676650858658561710.post8602226516464182511..comments2023-11-02T06:14:07.871-04:00Comments on Quantifiable Edges: Do Reliable Oscillations In The VIX Make VIX Options An Easy Profit Vehicle?Rob Hannahttp://www.blogger.com/profile/07596674657839065754noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2676650858658561710.post-89379076028455764692008-05-23T01:10:00.000-04:002008-05-23T01:10:00.000-04:00Very Good Observation - here are my views sitting ...Very Good Observation - here are my views sitting in Asia - I do not trade VIX Index but use it to gauge the direction and sentiment of the market and thus take position in the Asian market as they are closely correlated with the US Markets. <BR/><BR/>Using VIX I get two days of head start to trade in the market - when I come in Asia morning - I can see where the VIX had closed and then because of the mean reverting can guess what is going to happen the next day - it worked almost 70% of the time. <BR/><BR/>When used with the Historical Volatility - VIX can give very good indication of the market sentiment, like the recent rally in S&P - why - because the Historical Volatility was much higher then the VIX Index indicating the past was bad and the the low VIX level were telling us the future is not going to be as bad as the past. <BR/><BR/>visit my blog - www.optionsview.blogspot.com to red more on this topic. <BR/><BR/>thx. <BR/><BR/>www.optionsview.blogspot.comOptionsviewhttps://www.blogger.com/profile/04007093163329359717noreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-47861722313484624762008-02-27T11:30:00.001-05:002008-02-27T11:30:00.001-05:00Rob,for what reason should one prefer VIX options ...Rob,<BR/><BR/>for what reason should one prefer VIX options over using VIX futures (front month) in order to try to match VIX movements ? VIX options are derivatives on derivatives (VIX futures), which are derivatives<BR/>on a statistic figure (VIX) based on the implied volatility of a couple of S&P options, the latter ones themself derivatives on an index.<BR/><BR/>VIX front month futures do usually have a correlation between 0.8 and 0.95 (PEARSON) versus the VIX (depending on the time frame and the current value of the VIX) and<BR/>would therefore much better match the movement of the VIX than VIX options.<BR/><BR/>Concerning your VIX trading system No. 1) and if one would have used VIX front month futures instead of VIX options, trading results would have been much different (in a positive manner):<BR/><BR/>1) Short the VIX front month future (1 contract) on every trading day when the VIX closes 15% or more above its 10-day moving average. Cover when it closes below its 10-day moving average.<BR/><BR/>Result (start date May 1, 2004):<BR/>Round trips: 18<BR/>Thereof profitable: 17 (1 with a loss)<BR/>Total (gross) profit: 47.05 points (1 point = USD 1,000.00) -without slippage and commissions-<BR/>Maximum exposure: 6 contracts short (6 trading days with an additional 1 contract short every day before covering those 6 contracts)<BR/>Average holding period: approximately 6 trading days<BR/>Average (Gross) profit per contract: 1.02 points = USD 1,002.00 (46 contracts shorted in total)<BR/><BR/>I took into account (included in P&L) that during 2 round trips the respective number of shorts had to be rolled over to the next contract month which led to a <BR/>loss of -3.15 index points (USD 3,150.00).<BR/><BR/>Due to the fact that concerning VIX futures the (initial) margin is USD 3,750.00,-, the (not annualized) profit would have been 26.72% for an average holding period of 5 trading days.<BR/><BR/>(may be you could verify these results yourself if you are interested in, because usually 4 eyes will see more than 2 if there has been any miscalculation)<BR/><BR/>Best regards<BR/>Frank<BR/>(I beg your pardon for not being a native speaker)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-34388754283428638302008-02-27T11:30:00.000-05:002008-02-27T11:30:00.000-05:00Superb analysis, Rob -- and thanks for the mention...Superb analysis, Rob -- and thanks for the mention.<BR/><BR/>Your blog is already one of a kind.<BR/><BR/>Cheers,<BR/><BR/>-BillBill Lubyhttps://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-7410811193479551902008-02-26T14:44:00.000-05:002008-02-26T14:44:00.000-05:00I think the VIX is an excellent indicator and have...I think the VIX is an excellent indicator and have used it to successfully time market entries for a long time. I have done only a small ammount of trading in VIX options. As this post suggested it can be tricky so I generally stay away.<BR/><BR/>The ideas mentioned to use the VIX as a way to time the S&P are spot on. Alex's idea of buying and selling S&P puts is a good one.<BR/><BR/>I'll write more on S&P timing using the VIX in future posts.<BR/><BR/>Two blogs that offer excellent VIX coverage with some good discussion of more complex strategies are VIX AND MORE and the Daily Options Report - both are in my blogroll. Larry Connors at TradingMarkets.com has also published a lot of good work on this subject.<BR/><BR/>RobRob Hannahttps://www.blogger.com/profile/07596674657839065754noreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-1867141292354877472008-02-26T14:10:00.000-05:002008-02-26T14:10:00.000-05:00I've also considered a strategy that incorporates ...I've also considered a strategy that incorporates the inverse correlation between the VIX and S&P 500. When VIX is high, we expect VIX to fall and S&P to rise - sell puts. When VIX is low, we expect VIX to rise and S&P to fall - buy puts. This strategy may provide a good hedge to market shocks.Alexhttps://www.blogger.com/profile/03977124474414217398noreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-57878217572164174112008-02-26T14:03:00.000-05:002008-02-26T14:03:00.000-05:00Instead of trading VIX options, why not using VIX ...Instead of trading VIX options, why not using VIX mean-reverting strategies on an index, say S&P 500? Will it work as well as if applied directly to the VIX itself?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2676650858658561710.post-1405740596638047392008-02-26T13:59:00.000-05:002008-02-26T13:59:00.000-05:00Are there alternative methods for trading the VIX,...Are there alternative methods for trading the VIX, i.e, using S&P index options to create a delta-neutral, positive/negative vega position? What about using the notion that VIX futures successfuly predict future VIX movements to find opportunities to buy or sell vega?Alexhttps://www.blogger.com/profile/03977124474414217398noreply@blogger.com