International markets traders banter

[shouldaindex]

I'm leaning towards just a mini-bear of around 6 months which most of it has already happened.

That's predicated on China not causing a major economic event (earnings), and using 12 month PE multiples and not Shiller 10 year (price).

I would love to see another 10% off due to China/Fed worries in the volatile September/October period.

 

[sinner]

That's predicated on China not causing a major economic event (earnings), and using 12 month PE multiples and not Shiller 10 year (price).

Using TTM earnings has a major issue: the assumption that future earnings will be the same or higher, regardless of how high or low profit margins are. Profit margins are highly mean reverting.

I'd advise using a valuation metric that takes the mean reverting nature of the business cycle (and hence profit margins) into account. CAPE, Market Cap/GDP, Price/Revenues, etc all seem to provide much more useful forecasts than TTM P/E or FOPE.

 

[PinguPingu]

Anyone explain why the VIX futures are going crazy? Its higher than the black Monday last week.

 

[sinner]

Anyone explain why the VIX futures are going crazy? Its higher than the black Monday last week.

Got a screenshot or something? I have it quoting under 30.

ES futs are only down about 50 points off last nights NY open, nothing to warrant a doubling in VIX.

 

[sinner]

Ah, nevermind buddy, I see what you are talking about, VIX futs not the actual VIX.

Remember, VIX futs are speculations on where the VIX will quote on expiry, and the VIX is itself a market implied forecast for volatility.

 

[PinguPingu]

Remember, VIX futs are speculations on where the VIX will quote on expiry, and the VIX is itself a market implied forecast for volatility.

Ahh yeah, so basically more people are thinking that short term (Sep, Oct) VIX is likely to print even higher. You can roll them over indefinitely though?

 

[sinner]

Ahh yeah, so basically more people are thinking that short term (Sep, Oct) VIX is likely to print even higher. You can roll them over indefinitely though?

No. The contango will break you in no time flat.

I had to logscale this chart to make it viewable.

VXX ETF invests in weekly (used to be monthly) VIX futs to try and replicate the intraday return of VIX futs.

As you can see...down 99.8% from inception in 2009.



Admittedly not the most conducive environment to be long vol, but the principle holds across most investments.

Being systematically long (or short!) vol is not going to win in the long run. This is options trading, need to know the ropes.

EDIT: I meant to say *NOT*

 

[Wysiwyg]

A fairly significant drop unfolding. :badsmile:

 

[sinner]

So far, no signs of a lawn dump/money cannon by the CBs, pretty much the only thing I think will save last weeks entire move from getting faded.

Associated Press already banging on the drum

http://abcnews.go.com/International/wireStory/wobbly-euro-economy-bigger-push-central-bank-33446420

Analysts are already talking about when and how the European Central Bank might extend its 1.1 trillion-euro ($1.2 trillion) stimulus program that has been running for the past six months in an attempt to boost the modest recovery in the 19 countries that use the euro.

They say ECB President Mario Draghi will likely use his news conference Thursday to underline the bank's willingness to increase its efforts, if needed, to push up stubbornly weak inflation or limit any damage from the economic troubles in China.

Sorry Mario, but $1 trillion over 3 years is not going to cut it anymore.

 

[Trembling Hand]

A fairly significant drop unfolding. :badsmile:

Nah bottom in.......

 

[PinguPingu]

No. The contango will break you in no time flat.

I had to logscale this chart to make it viewable.

VXX ETF invests in weekly (used to be monthly) VIX futs to try and replicate the intraday return of VIX futs.

As you can see...down 99.8% from inception in 2009.

Admittedly not the most conducive to be long vol, but the principle holds across most investments.


It is a weird situation. Sure, growth is anemic but numbers coming through lately are not catastrophic. US is ok, Germany holding everyone up, everyone knew China was fibbing a little (more). Fed will say whatever it takes to placate. I don't see the catalyst.

Being systematically long (or short!) vol is going to win in the long run. This is options trading, need to know the ropes.

Right. So in this case with VIX in 'contango', could it be a viable strategy to short VIX futs (assuming you could withstand a bigger 2011 style or GFC spike situation arose ) as eventually Vol must drop? (in the general sense and to meet the spot price), and given its market allows you to roll each month.

But I would think less risky would be to do it through options as you say.

It is a weird situation. Sure, growth is aenemic but the numbers coming through lately are not catastrophic. US ok, EU still struggling but Deutshie holding everyone up. Everyone knew China was fibbing a little (more). Fed will say whatever to placate. I don't see the catalyst other than shakeout.

 

[sinner]

Right. So in this case with VIX in 'contango', could it be a viable strategy to short VIX futs (assuming you could withstand a bigger 2011 style or GFC spike situation arose ) as eventually Vol must drop? (in the general sense and to meet the spot price), and given its market allows you to roll each month.

Sorry, I meant to say being systematically long or short vol not going to win in the long run. Edited the above quoted post.

The VIX is never in contango. VIX futs are sometimes in contango and sometimes in backwardation. Currently backwardated.

Yes, if you think realised volatility will be lower than implied vol or backwardation to change back to contango, then short VIX futs. There is an ETF for this as well, SVXY and XIV. Shorting vol when it's low and rising is bad for your health, just like buying vol is bad when it's high and falling.

There's nothing magical about VIX trading strats, it's more complicated in every way than trading the underlying. If you want to bet on the VIX it is not just about the direction of the market but the absolute and relative (to historical and forecast) levels of the index, which basically tracks implied volatility. So, to win, you need to correctly predict the markets direction, volatility, and so on.

Need to know the ropes.

But I would think less risky would be to do it through options as you say.

Might be worth learning the basics, VIX is the volatility forecast as implied by a large range of short term options on the big SP500 futures. It is options.

 

[Wysiwyg]

Nah bottom in.......

Duration and intensity --- gets me every time.

 

[Toyota Lexcen]

can't see this volatility ending until US raise rates, we have had Greece, China and just waiting for the US interest rate issue to clear

think they missed an opportunity a few weeks ago

 

[sinner]

can't see this volatility ending until US raise rates, we have had Greece, China and just waiting for the US interest rate issue to clear

think they missed an opportunity a few weeks ago

I don't disagree that we might continue seeing a period of high volatility. It's possible!

But bets on volatility taken now will only be profitable if volatility rises at a faster rate than the market has already discounted. If volatility remains high but not rising (fast enough), long vol bets are mathematically gonna lose. The fun thing about options is that this doesn't mean that short vol bets are mathematically going to win either.

Where's wayneL or mazza when you need them.

 

[PinguPingu]

Appreciate the explanations, sinner.

The fun thing about options is that this doesn't mean that short vol bets are mathematically going to win either.

I'm going to guess this is because of the risk by the nature of vol. if its low, it at any time could simply spike again? Or this just a general options thing.


(Also sorry for possibly derailing banter)

 

[sinner]

Appreciate the explanations, sinner.

I'm going to guess this is because of the risk by the nature of vol. if its low, it at any time could simply spike again? Or this just a general options thing.


(Also sorry for possibly derailing banter)

Options have a bunch of attributes referred to as "the greeks" or "options greeks":

https://en.wikipedia.org/wiki/Greeks_(finance)

Without getting too deep into it (and it goes real deep lol), some of these attributes, mostly theta (time decay), can cause long vol options to lose value, even if the volatility is rising.

 

[hhse]

What is the reason for wanting to go bullish on the VIX when it is currently in backwardation?
The VIX is usually in contango, so wouldn't it be better to go bearish on the VIX instead...

 

[sinner]

What is the reason for wanting to go bullish on the VIX when it is currently in backwardation?
The VIX is usually in contango, so wouldn't it be better to go bearish on the VIX instead...

See for yourself

https://marketsci.wordpress.com/201...dly-following-the-vix-futures-term-structure/
https://marketsci.wordpress.com/201...ing-volatility-etps-term-structure-following/

 

[sinner]

Unless right now is the capitulation high in the USD (seems unlikely!), I am not really sure how this support can really hold for AUDUSD. At best we get a messy range here.

1h AUDUSD spot