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For those interested, CME is launching a new Nasdaq-100 Volatility Index. We will be hosting a live webinar with them on launch day. I will post the registration link here once I have it.
Use Promo Code FUTURES.IO for $0.45 futures commissions, $0.19 micro commissions HERE. *Promotion only available to new customers. Other fees such as exchange and NFA still apply*
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Ironbeam Futures
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It is a welcome addition to the vol complex. Curious to see the rate of adoption by market participants. With that said, exchanges are slacking on VOLQ index options...
It appears that market participants are reluctant to sell vol for the period when election results are pending. Hence the elevated risk premium. If the event is priced wrongly, the entire curve is expected to shift and slide. Perhaps it is not a bad idea to trade the relative value between the vols.
Although elevated, the vol curve for 60 dte constant maturity ES options looks fairly flat compared to 1 month ago. ATM vol for 60 dte constant maturity is trading ~2.7pts above its 30 dte counterpart. Spread between these expiries is lower than I expected. Put skew for the wings has been coming in for the past month. Demand for downside protection has been waning.
Fun fact: the 2020 Election is the most expensively priced "known-unknown" in the history of the VIX complex (forward vol).
Hey @suko thanks for an interesting thread and a good read, I sure learned a lot! I've been trying to become a bit less discretionary in my portfolio management and going long vol / VIX in these liquidity cascades that we have been experiencing these past 2 years would have mitigated a big chunk of my losses. I have been experimenting with a German etf Lyxor S&P 500 VIX Futures Enhcd Roll which tracks this index ( https://www.spglobal.com/spdji/en/indices/strategy/sp-500-vix-futures-enhanced-roll/#overview ) and trades the the entire curve from M1-M7.
I've been experimenting with different ways of defining backwardation for timing purposes to go long vol but it seems to me that the most important contango percentage to keep track of is the front month and when that goes negative, would you agree? This in combination with VIX spot closing above yesterdays close makes sense to me as a timing tool, although I don't have enough experience with the VIX to say so definitively.
This caught the vol explosion already at Feb 24th this year. Or maybe some combination of all of them when 0 > ( M1-M7 / 7) is a good definition of backwardation?
Thanks again, and others are welcome to come with inputs obv.
>>going long vol / VIX in these liquidity cascades that we have been experiencing these past 2 years would have mitigated a big chunk of my losses.
You need to keep your eye on the smart money. When they get hedged up that is your sign to buy some too.
>> different ways of defining backwardation for timing purposes to go long vol
This is a problem that has engaged the rocket scientists in hedge funds and banks for many years. There is no simple answer to it. Other than watching the smart money hedging as mentioned above.
If you want to put in place a more persistent hedge using vol products there are two choices, depending on where the edge is at the time, a) VIX call spreads b) long SPY butterflies.
If you want to try some backtesting of such strategies, I suggest using Trade Machine Pro.
Also, we haven't talked about VVIX much in this thread but you need to keep your eye on it in making decisions on whether to look to SPY puts or VIX calls for your hedging. The higher the VVIX in relation to VIX the more expensive vol products are.
VVIX is currently 133 and this is well above the 120 level that I see as the top bound for buying vol products. It will be going higher still.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
There has been an excited ongoing discussion about VOLQ on Vol Views.
I really look forward to its widespread adoption. It's perhaps a better design than VIX.
The history is that many vol products have been introduced over the years only to fail sooner or later. We just lost TVIX and ZIV as well as others.
At the current point the only ones that have enough liquidity to be tradable in normal times are VXX, VIX, /VX and UVXY.
When market liquidity dries up in a crash VXX is the one where the spreads are most tradable. So, the VOLQ products will have a long, hard uphill battle to get into to top of this lineup next to VXX.
How likely is that?
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
Just came across this great thread ! Thanks for that!
One clarification please
"VIX options are not the ViX, they are essentially VIX options on futures. This is an unfortunate nomenclature confusion that has brought many a person to grief. The VIX is an index, not a product, and is also known as Cash or Spot."
What do you mean by VIX options on are on futures ? There is such thing as VIX options on the cash/index right ?