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Wall Street Oasis » Blogs » Edmundo Braverman's blog
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Is VIX the Play for 2013?
 

Edmundo Braverman's picture
Edmundo Braverman
      ST
 
 
(Human, 14,326
 
Points)
 on 2/5/13 at 7:16am
VIX.png

I remember the summer of 1998 when crude oil was putting in new lows almost daily. At one point it went below $12 a barrel, which is roughly what it cost at the time to pull it out of the ground. Think about that for a minute: for a brief time oil was worth more right where it was beneath the Saudi sand than it was in the tank of your car. I remember going over Unleaded Gas charts with clients and telling them, "You see where the lowest point gas has been in the history of trading on the chart? Yeah, take your pen and make a mark on your desk about two inches below the sheet of paper, cuz that's where it's trading right now."

It's easy to look back on that time and say, "Well, duh. Of course you should've been buying. How much lower could it go?" and you'd be right. (just for your reference, gas at the pump was as low as $.70 a gallon in some places) But I can tell you that it wasn't an easy sale for a lot of people. It was just so low that many clients, some pretty sophisticated, wanted nothing to do with it. Fortunately I built a huge position and it began the roll that led to my retirement a year later.

I'm starting to wonder if we're not seeing a similar opportunity in today's VIX. The VIX has been stupid low for the past couple years. Even after yesterday's 14% jump, the VIX remains below its 50 and 200 day moving averages. With the market putting in 6-year highs and rallying more than 5% YTD, I wonder if everyone has been lulled into a false sense of security and is about to lose a big chunk of their ass to the bite of the VIX.

If nothing else, it seems like a worthwhile hedge for any long portfolio at this point, but with the availability of levered VIX ETFs, I think there's some real money to be made this year.

I'm not suggesting that another 2008 (when the VIX hit 80) is imminent. Frankly there's nothing out there to suggest that. But with the VIX around 14 (currently), even a return to the average VIX of 20 would be a huge home run in a levered ETF like TVIX.

Is anyone else thinking this? Things have been awfully quiet lately. Is the VIX at 14 the same as crude oil at $12?

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Tags:
  • VIX
  • trading

Comments

RichardPennybags's picture

Hah, I literally pitched

RichardPennybags
      ST
 
(Senior Orangutan, 414
 
Points)
 on 2/5/13 at 7:53am

Hah, I literally pitched exactly this in a BB interview yesterday. I think the guy was impressed that I knew what VIX is at all, haha....

But yeah, seems like a good play, considering all the shit going on pretty much everywhere in the world

"Every man should lose a battle in his youth, so he does not lose a war when he is old"

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frooter's picture

personally, id put on a small

frooter
     
 
(Baboon, 124
 
Points)
 on 2/5/13 at 7:58am

personally, id put on a small position....going long the vix, as you know, is for lack of better concepts, shorting the market, now I would not short the market heavy with all central bank intervention....granted the vix can easliy double or triple, but i think it would be over a few weeks time., I just dont see central banks letting markets going to their true value, and out of their control...Bernanke's position, is wants people to shift form bond market in to equities...hence keeping rates this low.......what do you think my friend?

essentially your shorting risk....so maybe look to short Euro......Euro too high, just like the Yen, ECB may feel the need to devalue it to make exports more attractive.....

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SirTradesaLot's picture

I suggest directly trading

SirTradesaLot
      O
 
 
(Senior Neanderthal, 4,501
 
Points)
 on 2/5/13 at 8:02am

I suggest directly trading options is more efficient than using an ETN like the TVIX. The problem with the VIX based ETNs is that you can be deadly accurate in your call and still lose money because of the negative roll yield, which can cost you 10% a month or more. There is no ETN that trades spot VIX, only VIX futures.

Turbo leverage for capital explosion -- BD Capital

My WSO Blog

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mikesswimn's picture

VIX is a short term index, I

mikesswimn
      O
 
 
(Senior Gorilla, 863
 
Points)
 on 2/5/13 at 8:29am

VIX is a short term index, I think 0-3 months, so whether it's the play for 2013 depends entirely on "what quarter of 2013"? Also, from what I can tell, they're expensive. Take the April 2013 calls with a 15 strike, they're trading near $3, which means that you're looking at a loss unless the VIX jumps +20% in under 90 days. Granted, if you're looking to hedge the S&P, it's a good option from a price perspective when compared to the OEX/XEO.

But, I wouldn't suggest trying to speculate unless you have a big chunk of cash burning a hole in your pocket. And if you do, just buy the options (see SirTradesaLot's comment). Just my $0.02.

"My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

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ricky212's picture

Why would you trade against

ricky212
      ST
 
(Orangutan, 356
 
Points)
 on 2/5/13 at 8:30am

Why would you trade against such a major trend? A lot of people have been losing money to VIX etns following this exact line of thinking.

Because when you're in a room full of smart people, smart suddenly doesn't matter—interesting is what matters.

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duffmt6's picture

I made a fair chunk of change

duffmt6
      IB
 
 
(Neanderthal, 2,304
 
Points)
 on 2/5/13 at 8:40am

I made a fair chunk of change a couple summers ago in XIV. The problem with VIX ETN's is obviously the negative roll yield - they are designed to go to zero so you need to fucking nail your call, and I'm not that smart. I don't trade options and thus don't think I would ever go long volatility.

"Social cohesion and puritanical morality place roughly on my list of concerns between whether I'll pick up jock itch at the gym this week (not likely, since I don't go the gym) and whether it'll rain in Christchurch, New Zealand next Tuesday."
-Eddie

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duffmt6's picture

Just to add - you guys might

duffmt6
      IB
 
 
(Neanderthal, 2,304
 
Points)
 on 2/5/13 at 8:43am

Just to add - you guys might want to check out this syndication: http://www.wallstreetoasis.com/blog/118242 and the guy's blog, sixfigureinvesting.com. He does some great stuff on volatility.

"Social cohesion and puritanical morality place roughly on my list of concerns between whether I'll pick up jock itch at the gym this week (not likely, since I don't go the gym) and whether it'll rain in Christchurch, New Zealand next Tuesday."
-Eddie

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Edmundo Braverman's picture

Okay, you guys are right and

Edmundo Braverman
      ST
 
 
(Human, 14,326
 
Points)
 on 2/5/13 at 8:49am

Okay, you guys are right and I should have specified the option play. Options are how I trade all my macro ideas but I realize that wasn't implied in my post and that you'd have to be familiar with the other stuff I've written about to know that.

So for those wondering: yes, the ETN (or ETF) play is not the way to trade this (unless you're right on the money timing-wise). You definitely want to trade the options on the VIX for the lower outlay of capital and increased leverage (with a limited downside risk).

Here's what I mean about limited downside in options:

http://www.wallstreetoasis.com/blog/trading-withou...

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samoanboy's picture

I agree that there is some

samoanboy
      PE
 
 
(Gorilla, 505
 
Points)
 on 2/5/13 at 9:46am

I agree that there is some room for the VIX to jump, but if you look at (VIX INDEX GP) you can see that the market has been at these levels and then fallen further for 18 months at a time (1992 to 1994), (2004 to 2007) - trying to time that badboy is well beyond my skills.....

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spoonfork's picture

This guy knows his VIX

spoonfork
      ST
 
(Senior Monkey, 97
 
Points)
 on 2/5/13 at 10:29am

This guy knows his VIX ETPs.

http://vixandmore.blogspot.com/

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Banker88's picture

I lost big putting money into

Banker88
      IB
 
 
(King Kong, 1,650
 
Points)
 on 2/5/13 at 4:58pm

I lost big putting money into VXX this summer as it kept breaking new lows. Was a stupid play and I know should not be a long-term hold given the negative roll yield. But now not sure whether to sell it at a huge loss or wait for a pop...

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puax's picture

It might be low, but it's

puax
      HF
 
(Monkey, 54
 
Points)
 on 2/5/13 at 5:20pm

It might be low, but it's expensive. What's cheap is vol, not VIX. So I'd buy options.

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mikesswimn's picture

Banker88: I lost big putting

mikesswimn
      O
 
 
(Senior Gorilla, 863
 
Points)
 on 2/6/13 at 6:34am
Banker88:

I lost big putting money into VXX this summer as it kept breaking new lows. Was a stupid play and I know should not be a long-term hold given the negative roll yield. But now not sure whether to sell it at a huge loss or wait for a pop...

If you want to lock in some big gains somewhere else, it might be best to sell now at a loss to offset the gain on your taxes. You'd get liquidity and a break on your taxes, but yeah, it'd be a bitch if right afterwards VXX popped.

"My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."

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Bw113's picture

Just wanted to say thanks for

Bw113
     
 
(Chimp, 14
 
Points)
 on 2/26/13 at 8:15am

Just wanted to say thanks for the big payday. May and June OTM calls! sold half yesterday...

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F117's picture

Bw113: Just wanted to say

F117
     
 
(Monkey, 59
 
Points)
 on 2/26/13 at 10:04am
Bw113:

Just wanted to say thanks for the big payday. May and June OTM calls! sold half yesterday...

Same here. Thanks Ed for a great trade idea

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  • So let me give you guys a background to my current situation and then I'll follow it up with the main reason i'm here for, a request for some advice. First of all, I go to a semi/non-target school in the New York area, think top 30-40. I've maintained a GPA of around 3.8, with...
    To be or not to be?
  • I don't quite understand how some of these banks are offering "quant" internships (citi quant, ms strats & modeling, etc.) for undergrads when they don't even require a course in stochastic calculus/monte-carlo siulation as a requirement. I've taken two sem. of...
    Undergrad "Quant Trading" internships = nonsense?
  • Hello Monkeys, A little background about myself, I am currently in my 1st yr at a BB doing BO stuff and I've been trying every means possible to get into trading. So long story short, I am part of several committees in my bank that does some stuff outside of work and it turns out that one...
    Breaking into BB trading through networking
  • Inspired by comments from this: http://www.wallstreetoasis.com/forums/basic-guide-ramping-up-on-a-company-with-public-information-part-1-of-3 Lets just jump in. <strong>Technology:</strong> In this space there are really two metrics that matter the most, sales growth and EPS...
    Beginners Guide to Valuation and Metrics By Sector
  • Dear, Since about 2 months I am reading topics on this great forum. It really is the best forum I have seen so far. I've got a couple of questions, but first of all I will tell you something about my life: Age: 20 Universtity: university of amsterdam Bachelor: finance (and...
    Some questions from an ambitious dutch student
  • delete...
    delete please
  • So I got an offer from a boutique consulting firm. It mainly does project management for a number of F500 tech companies. It starts in august. What I originally wanted was to work in AM but I couldn't get an offer. Any ideas about how I should go about getting a job in finance? I have a few...
    Graduating senior, need a finance job! MSF?
  • I'm interested in hearing from people who have received full or partial scholarships to schools and what their stats are. Currently I'm ~690 gmat , 4.0 gpa and I'm looking at vandy, ut austin, villanova, and duke Thanks to anyone who can help post some public...
    Can anyone share anecdotal MSF scholly stats?
  • Hey Monkeys, I'll be moving to London for work later this year - my office is in Hammersmith. For the sake of convenience for work, I've considered living in Hammersmith (near the tube station). For those of you who live or have lived in London - what are your thoughts on choosing...
    Working in London (Hammersmith) - suggestions on where to live?
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I used to work with a guy that had everything on the surface, but absolutely nothing inside. The guy was 6 feet tall, good-looking, charismatic, multi-lingual, graduated from a top business school, and had made MD at a bulge bracket investment bank. Yet he couldn’t remember the last time he...
How to Develop a Personality
<em>Mod note (Andy): we vetted this user to confirm his identity/status and yes in fact he is who he says he is, and is eager to answer your questions :)</em> Bio: I decided to join WSO to help both students and young professionals advance in their Finance careers, whether that be...
I'm an MD and I run the Sales division: Ask Me Anything
For better or for worse, there’s a very unique feeling when everything goes completely according to plan yet nobody seems to care or notice. Such is the case with our favorite company of the moment, Tesla Motors. For those unaware, TSLA has rocketed upwards since its Q1 earnings release,...
A Perfect Storm
You've just gotten that promotion and now you're in charge of a small team. Congratulations! And welcome to middle management. All the hard work and the knowledge you've developed about everything your firm does these past few years has been noticed. But, now you have a small...
7 Things I've Learned About Being A Manager
Assuming that you have access to no financial products such as FactSet, Bloomberg, CapitalIQ, Thomson or otherwise, thought it would be helpful to give a step by step guide on how to ramp up on a new company from your home computer. Using FaceBook as an example. Lets go ahead and start with the...
Basic Guide Ramping Up On A Company With Public Information (Part 1 of 3)
Fellow Primates, We are looking for 1-2 students on each campus to help WSO in its sales efforts to student clubs/career centers, and overall promotion at your school both online and on the ground. Below is a description of the position and benefits...thanks in advance for your help! <a...
WSO is Looking for Campus Reps For Summer/Fall 2013 (and beyond)
<em>“You know, In The Flesh,”</em> a WSO monkey told me at a recent Happy Hour, <em>“that gentleman’s book is the real deal. I ordered that shit on Amazon as soon as I read your review. It’s so right, man. I want to be like that: keep my word, honor my commitments, be...
Being A Gentleman, Revisited
Inspired by comments from this: http://www.wallstreetoasis.com/forums/basic-guide-ramping-up-on-a-company-with-public-information-part-1-of-3 Lets just jump in. <strong>Technology:</strong> In this space there are really two metrics that matter the most, sales growth and EPS...
Beginners Guide to Valuation and Metrics By Sector
<em>Mod Note: This is a syndication from Jared's Daily Dirtnap daily market newsletter. WSO readers qualify for a $100 discount...just email [email protected] and mention "WSO Monkey Discount" You can follow Jared on twitter at @dailydirtnap</em> There I go...
In Praise Of High Interest Rates
<em>Mode note: Blast from the past - "Best of Eddie" - this one is originally from December 2010.</em> Monty09 may have gotten the best plug yet for his <a href="http://energyrodeo.com/">Energy Rodeo</a> in Houston next month, and it came from none...
New York vs. Houston
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