Trading the VIX

Brumby

Well-known member
May 25, 2012
600
136
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#1
There had been plenty of discussions about the state of the US market in the past few days but hardly any mention about the VIX which has been making headlines. I thought I will start a thread on it as there are many lessons from it.

There are a couple of recent articles on this subject which i am including as they provide some interesting background and discussions on the subject matter.

XIV trader: ‘I’ve lost $4 million, 3 years of work and other people’s money’
https://www.marketwatch.com/story/x...rs-of-work-and-other-peoples-money-2018-02-06

A few lessons on risk in short volatility strategies
https://adamhgrimes.com/lessons-on-risk-short-volatility/

If you don't understand what VIX is and how it is valued, you are in the same camp as me. First lesson is don't trade something you don't understand especially in how risk is generated. Long story short, the VIX closed at 99.0 on 5/2 and the next day it opened at 10.49. If you were trading some leveraged futures on VIX, you can imagine the financial devastation it made to your account. No history or back test would have made any difference because such a big move had never occurred before.
 

FXX

Well-known member
Oct 12, 2017
1,102
175
73
#2
Those traders should have known that cheap money flooding tells markets for 10 years has lead to the tremendous appreciation of equity markets would come to an end raising volatility. It's been week after week of record highs and that in itself should be a warning sign. I feel sorry for the clients that lost money but not for the traders that failed to properly research and adjust their positions.

A good topic Brumby, I wonder how many traders look at the vix. I use it as part of risk off analysis but also the Stoxx 50 Volatility index.

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Brumby

Well-known member
May 25, 2012
600
136
53
#3
Those traders should have known that cheap money flooding tells markets for 10 years has lead to the tremendous appreciation of equity markets would come to an end raising volatility. It's been week after week of record highs and that in itself should be a warning sign. I feel sorry for the clients that lost money but not for the traders that failed to properly research and adjust their positions.

A good topic Brumby, I wonder how many traders look at the vix. I use it as part of risk off analysis but also the Stoxx 50 Volatility index.

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I think is one thing to understand volatility but another to be able to fully appreciate how valuation drivers when dislocated can significantly impact the underlying value. I don't think anyone saw it coming the way it did when you match the SP500 movement in recent days versus VIX movement.



 

BWills

New member
Apr 27, 2018
3
0
1
#4
What instrument do you use to directly trade VIX?