International markets traders banter

[ThingyMajiggy]

The VIX? CBOE Volatility Index....Currently 15.3

Sam, what going on?....You think Ben jawboning tonight might cause some volatility?

CanOz

Yeah but is that actually tradeable or just viewable?

Ben jawboning always does doesn't it? Nah I'm curious as well, heard of the VIX etc. but thought it was just a viewable thing.

 

[CanOz]

Yeah but is that actually tradeable or just viewable?

Ben jawboning always does doesn't it? Nah I'm curious as well, heard of the VIX etc. but thought it was just a viewable thing.

Nah, its there to trade, here....

 

[sinner]

How does one trade volatility? Is it even possible? Say I think the market will increase in volatility tonight, is there a volatility index I can get long on so to speak?

You can buy an ATM straddle and run a delta hedging regime for a close synthetic.

 

[sinner]

P.S Trading VIX futures is not the same thing as trading VIX.

http://www.theoptionsguide.com/vix-future.aspx

Depending on how the market perceive volatility, the price of a VIX futures contract can be lower, equal or higher than the VIX spot price. Often, due to the mean-reverting nature of the VIX, when the VIX is low, VIX futures trade at a premium and when the VIX is high, VIX futures trade at a discount.

Spot VIX is implied vol on near dated options, i.e. the market forecast for realised volatility ~30d in the future. VIX futures are actually the market forecast for VIX, so the forecast for the forecast for realised volatility. Calls on VIX futures are again another step removed.

If you're looking for a cash underlying to trade off spot VIX signals, then I suggest SPY.

 

[ThingyMajiggy]

You can buy an ATM straddle and run a delta hedging regime for a close synthetic.

....what?

 

[CanOz]

JGB trading has just been halted as the exchanges circuit breakers kicked in...Yields are surging higher...

 

[avion]

....what?

+1 :alcohol:

 

[CanOz]

....what?

Me too......what?

I admire these options guys...

 

[sinner]

....what?

Something like this

http://www.optionetics.com/marketdata/article.aspx?aid=24567

 

[sinner]

Maybe too complicated

http://www.optionseducation.org/strategies_advanced_concepts/strategies/long_straddle.html

A long straddle is a combination of buying a call and buying a put, both with the same strike price and expiration. Together, they produce a position that should profit if the stock makes a big move either up or down. Typically, investors buy the straddle because they predict a big price move and/or a great deal of volatility in the foreseeable future.

 

[CanOz]

Maybe too complicated

http://www.optionseducation.org/strategies_advanced_concepts/strategies/long_straddle.html

Ah, is that what Taleb was doing all the time? Looking to profit from extreme moves...that way he had a predetermined amount of risk and a potentially large reward...?

 

[sinner]

Ah, is that what Taleb was doing all the time? Looking to profit from extreme moves...that way he had a predetermined amount of risk and a potentially large reward...?

The Empirca and Universa underlying model is essentially long volatility, but its significantly more complicated than simply purchasing long straddles. My impression was that they generally buy OTM puts rather than both legs of the straddle.

Check out papers from Spitznagel, who was Empiricas head trader for Taleb, to see what triggers them to start longing volatility like this one

www.universa.net/UniversaSpitznagel_research_20110613.pdf

Hint: they are akin to value investors, starting to buy vols as the market becomes extremely expensive on valuation basis.

 

[ThingyMajiggy]

So what would you buy this straddle on? SPY?

 

[sinner]

So what would you buy this straddle on? SPY?

Any index instrument? SPY/ES, QQQ/NQ, etc.

Depends on the size. Underneath a certain size it is probably most convenient to just buy VXX.

Long volatility isn't an easy game, the market is almost always in contango. You need to be comfortable with trend following batting averages.

I very rarely do long vol against the overall market, my model tracks a small basket (<10 assets) of sector ETFs and indices.

 

[ThingyMajiggy]

Any index instrument? SPY/ES, QQQ/NQ, etc.

Depends on the size. Underneath a certain size it is probably most convenient to just buy VXX.

Long volatility isn't an easy game, the market is almost always in contango. You need to be comfortable with trend following batting averages.

I very rarely do long vol against the overall market, my model tracks a small basket (<10 assets) of sector ETFs and indices.

Ok thanks.

So you do long vol against a handful of stocks instead? What's the benefit? More chance to be volatile?

 

[sinner]

Ok thanks.

So you do long vol against a handful of stocks instead? What's the benefit? More chance to be volatile?

No, like I said, I trade on a basket of sectors.

Gold Miners
Energy
Financials
Tech

etc

 

[chops_a_must]

The Empirca and Universa underlying model is essentially long volatility, but its significantly more complicated than simply purchasing long straddles. My impression was that they generally buy OTM puts rather than both legs of the straddle.

Yeah, that was my impression.

My basic understanding of going long straddles, is that it is best in flat conditions, when expecting a break either way.

Thanks for the article.

 

[sinner]

My basic understanding of going long straddles, is that it is best in flat conditions, when expecting a break either way.

As always with options, it completely depends on a myriad of factors. Holding till expiration or not? Delta hedging or not? etc...

Since volatility is priced on a demand basis, being correct in your forecast of volatility is generally what drives returns, rather than any market inefficiencies. Even if a large break doesn't happen you can still profit handsomely from the IV increase on the options you hold. Conversely a crunch in IV and/or contango in volatility can decimate the value of your position even if a break occurs.

Looking through my notes, Bill Luby from vixandmore seems to consider (nondirectional) volatility a buy only when the following two conditions are met:
Volatility forecast: Low -> High
Directional forecast: Ranging

If anyone was curious, my model is currently taking small profits rather than looking for new entries, across all sectors.

 

[nysefloortrader]

LOVE the smell of a gap down Sunday, can I get an amen.

I also love the bantering going on about the fed and ending quantitative easing, havent we heard that same ****E for the last few years. LOL.

more rabbits out of hats coming, get ready.

 

[cynic]

I've just discovered a new four letter cuss word beginning with the letter "F".

FTSE this FTSEing rally and FTSE the FTSEing bourse that it FTSEing sailed in on! This rally has totally FTSEed up my year!

Anyone whom disagrees with my post is perfectly welcome to go FTSE themselves!