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Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131676
modified
10/2/2016 11:04:08 AM

@gmg733

Totally agree with your arguments ( I used "options 2-3 weeks out of the other post (mahkoh),without realizing that you did not specify the duration of options you use)
- I also agree with taking profits quickly( I usually close half at 50% ,then the other half at 75% profits)

Imho, the only reasonable instruments to use for this system are options spreads or futures spreads or other hedged instruments, because, as Kevin says, those open drawdowns already seen in 2 short trades are actually nothing, compared to the worst case scenarios, seen in the past( take a look at those Wild , fast swings in 2008, 2011 : without stops you could be out of money just by being once only on the wrong side of the market)

Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131662
modified
10/1/2016 1:43:59 PM

@gmg733
following your suggestion:

example for Oct 18 Options ( let's take a 5 points spread)
Sell 11call at 4.70
Buy 16call(ATM) at 1.2
Credit 3.5 ( risk is 1.5/5= 30%) at 16 on exp.

The problem I have with this spread is:
1. buying ATM calls , which means I pay 100% time value ( I hate this, as Theta is horribly against me)
2. buying a much more expensive call than I sell !( implied vol of 11 call=around 65% whereas Imp vol of 16 call is 91% ! )
3. The probability of this spread making money( being below 14.5 ( break even point) at the exp) , according to the quotes is only 28 %( delta of 14.5put with VIX Oct contract at 16 , today).

All these, tell me that the odds of a favorable outcome of this spread are not so good, imho.
Did I make a mistake somewhere?



Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131654
modified
10/1/2016 10:07:53 AM

I think I'll start tracking your signals and trade, as I explained, for a while, on paper, the Futures spreads F1-F2 ,( I'll use only 1 contract in the beginning) using the official open of both to calculate the spread, and let you know, guys, about the results.

Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131653
modified
10/1/2016 9:52:15 AM

mahkoh,
re.For long signals sell deep in the money ^VIX calls 2 - 3 weeks out. The premium involved is usually over 70 % so you have a big time decay advantage:

I also noticed that, actually, VIX Options have their underlying the VIX Futures and not VIX spot: if you look at the Oct 18 expiration, you will notice that the option which has a delta of 50% ( the At The Money) is the 16 Call ( the price of the Oct futures) and not the 13.5 call ( the price of the Vix index).
This means that : VIX index has options based on the price of the VIX Futures ? that's really confusing ( like many other things in VIX).

In conclusion, your plan to sell deep in the money options for their High Time premium seems to have no validity, as , for example, Oct 18 10 call goes for 5.50 bid-5.90 ask ( underlying Oct VIX future at 15.95) which is actually at a discount, with Zero Time premium in it and 100% Intrinsic value!);
this would make the case for using deep in the money options to mimic the VIX futures (not the index, though);
but then ,why bother with options instead of going long the Futures?

Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131649
modified
10/1/2016 7:57:49 AM

mahkoh,
re.For long signals sell deep in the money ^VIX calls 2 - 3 weeks out. The premium involved is usually over 70 % so you have a big time decay advantage:

maybe you could give us an example , this weekend, of a choice of a deep in the money call?
Not sure it's clear for me. Why would you sell short calls if you get a Buy signal? I'd rather do it on the system Sell signal?
When VIX goes up, it goes in big fast spikes,which could give you big drawdowns on the short calls.

Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131631
modified
9/30/2016 1:14:04 PM

No, i's not at all a predictive model for the VIX spot: I only see it as a possible way to trade the VIX system above, ( and maybe a more prudent one) as the VIX index cannot be traded.

If you move your cursor on the graph from Sep 7 to 14, you can see that:
1. VIX spot goes from 11.94 to 18.14= an increase of almost 52%
2. the difference between F2 and F1( 2 nd month minus front month) drops from 19.28% to 2.72%= a drop of 86 % ! this means that the front month(F1) advances much more than the second month (F2) when the VIX spot goes up.If the price of F1 becomes higher than F2= Backwardation ( bullish for VIX- bearish for the markets)

So, if the system gives a buy signal, one buys 1 Vix futures front month(F1) and simultaneously sells short the 2 nd month (F2) , hoping that F1 will gain more than the loss in F2( the spread narrows). When one exits on an exit signal, one closes BOTH in the same time as a spread again ( sells to close F1 and buys to close F2)

Hope it' s clearer?
Any opinions on this alternative / surrogate for VIX spot are welcome , of course.

Filter Exchange · A NEW ^VIX TRADING SYSTEM
dtatu
msg #131614
modified
9/30/2016 6:18:09 AM

re:The system is promising, but has trouble tracking Vix.

Just an idea : ( go again to : http://vixcentral.com/ , then click on the contango tab, then choose VIX Spot and F1-F2 Contango which will project their comparative graphs, and ZOOM !):

1. what about trading the Spread futures F1-F2 for long signals and F2- F1 for shorts ( eg. for a Long now, you would buy 1 Oct contract and sell 1 Nov and play the spread only; this would also limit the drawdowns,which could be very violent, in real life, in VIX?)

2. Did you try to take the opposite trade in SPY? ( for long VIX ,short SPY,etc.)

Filter Exchange · I Hate Giving Up All My Secrets But
dtatu
msg #131484
modified
9/24/2016 6:36:38 PM

then, one has to check the VIX index every day: I suggest this great link ( a picture is worth a 1000 words; play with the graph: everything is in it)

http://vixcentral.com/

Filter Exchange · I Hate Giving Up All My Secrets But
dtatu
msg #131475
9/24/2016 11:15:28 AM

Sincerely, unless somebody brings solid, real time proof that this system works both with long and short signals, I think the only way one can hope having a winning system with leveraged , volatility ETFs, is to take only the SHORT signals (decreasing volatility) on VXX, TWIX.( and maybe going long the inverse XIV;not sure though)

Filter Exchange · I Hate Giving Up All My Secrets But
dtatu
msg #131330
9/20/2016 10:49:41 AM

RE:
"Just what I'm trading now. You can catch all the action at collective2.
My system is called Donkey Punch Vix and it's currently up 115% in less
than 6 months. It currently sells for $29, but will soon quadruple."

I can't find any trace of it on Collective2.Can you help?

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