Long VIX: Free lunch?

[sj8070]

Declaration of Bias: I am very heavily long at 17.78

Dear trade2winners,

An overriding sentiment (or consensus) in the market at the moment is that much of Q1's bullishness is myopic and likely to only last a matter of weeks after Feb 28th's LTRO.

I am more bullish than consensus, believing that the LTRO is more of a game-changer (in terms of deploying liquidity and quasi-QE-ness) than many will admit.

Even still, not only do I not see the VIX ever dropping below 10 (volatility was grossly and fundamentally mispriced before 2007) as possible but I also believe a drop below 15 would be an extreme misprice as considerable destablizing risks still exist not to mention the plethora of tail risks, and assign a negligible probability to this event.

I would like someone to take the other side to this trade. It has a 1 year horizon (of course as n-> infinity this trade will eventually win as vol =/ 0)

"Convexity" (I'm a bond man) here is appalling - if there is an insurmountable pricing wall at 10-15 then your R/R on the short side is all but nonexistent.

Fundamental and technical arguments welcomed.

Why would you sell the VIX?

 

[leonarda]

I suggest you read up about VIX futures that you are trading as you can't trade spot VIX, they have a high decay rate, so your position you're holding now will decay.

 

[Hoggums]

Yes - it costs approx 1.5 points per month to hold this position - so if after 6 months the VIX goes to 25 you are still losing. Plus I haven't factored in rollover costs.

I do trade the VIX - but it's purely a hedging tactic against losses incurred on short options when the volatility rises. It's an expensive position to maintain - but helps protect me against Greece-default type scenarios which we experienced last August when the vol spikes above 30.

 

[leonarda]

So in summary, there's never a free lunch !

 

[robster970]

There is a lot of consensus that equities are topping out and people are expecting a correction shortly.

People are seeing S&P trading in territory where there was heavy selling last year on a number of occasions, questioning how this rally has been justified on the economic data coming out, VIX loitering around 17-18 area, etc, etc

I have noticed that the recent rally is now making into the public psyche and is covered at least on Radio 4 with some regularity (Today programme at least) - an exit signal if ever there was one.

All these reasons make me think there is likely to be a correction and accompanying volatility expansion. Nevertheless, the fact that so many people are expecting it to happen leads me to believe that the 'herd' may be wrong.

So I would not act as your counter-party but would choose to abstain.

 

[Roonbox]

I am also long VIX as of yesterday, I am planning to have tghis position closed by November, and am assuming there will have been major fireworks by then..

Liam.

 

[scose-no-doubt]

November?

No pi55ing about from you guys is there?

 

[N Rothschild]

dunno if i would be outright long the vix, selling vix puts could be a play though

 

[Roonbox]

November?

No pi55ing about from you guys is there?

I'm not a day trader. This is an insurance policy for me.