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Monday, July 27, 2015

Further comment on shorting $VIX


Shorting $VIX (though HVI.to) is one thing I've done rather well all year, but what the heck is my method?

Well:

 ASHR is crashing again, cos Shanghai is crashing, so I guess that creates fear in the US:


Which makes people buy downside protection for their US market positions, and $VIX is an index of the premium paid for downside protection.

So my job, in order to trade HVI successfully and not get bloody murdered, is to determine how much the panty-piddling has to go on before it stops.

So I look at the $VIX chart above and wonder if it can get to 20 again this time. Well, China dumped before y'know, and the world didn't end, so there should be less fear this time 'round andd $VIX shouldn't make it to 20 this time, right?

Ah, but wait:


There's suddenly a bunch of stress in the junk market, probably because of the whole oil thing:


And $INDU just made a lower low:


So maybe this fear pop can carry on for a little while?

So I just have to sit and do nothing for a few days, til either I get a Wagnerian $VIX climax, or I miss the boat, in which case no fear I can just buy double-long QQQ again and be like the normal people.

And because HVI and XIV only really make money as the front end of the curve increases its contango, it even pays to be a day late to the party! Seriously, just cos $VIX climaxes at 20 doesn't mean you want to buy XIV if the front end of the future curve is still backwardated.

So there's really no method - except just sitting and watching panties get piddled, attempting to estimate the ultimate target of panty-piddling, and if the target is missed big whoop I just take back a normal position.


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