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Post by walnut on Jan 10, 2017 13:06:13 GMT -5
Keep in mind that the scams will come down if the Jan and Feb futures begin to come down independent of the VIX index. That is what happened earlier today. So Contango dropped some.
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Post by theMist on Jan 10, 2017 13:08:47 GMT -5
Awesome to know! Your educating me.
Walnut - how did you calculate that 1/2 percent rate?
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Post by walnut on Jan 10, 2017 13:14:32 GMT -5
The VXX components weights adjust on a daily basis. It shifts some percent from the near term month to the second month every day. So you can get that weighted average contango and convert it as a percent to a daily VXX contango.
Actually, it is not specifically the contango that measures the daily drop. Contango is measured as (Feb - Jan) / Jan . The expected daily drop is measured as )(Feb - Jan) / Feb. x the current index weight of Feb) +((Jan - VIX index) / Jan ) x current index weight of Jan).
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Post by theMist on Jan 10, 2017 13:16:17 GMT -5
Hmm - thought it was M2-M1/M1 and thought that was how VIX Central calculated it all the time (I guess looking further out). Didn't know you calculate by M2-M1/M2 for daily rates.
lol - now my head is spinning. I will run through the numbers. Can you give an example and plug in the numbers so that we all can learn. Thx.
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Post by walnut on Jan 10, 2017 13:20:19 GMT -5
Hmm - thought it was M2-M1/M1 and thought that was how VIX Central calculated it all the time. Didn't know you calculate by M2-M1/M2 for daily rates. It is a little more complicated than that. For the Jan - vix / Jan you have to divide by days remaining on jan and x 30. Then convert that to a daily number (/ 30) and x VXX to get the daily drop.
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Post by walnut on Jan 10, 2017 13:23:33 GMT -5
Hmm - thought it was M2-M1/M1 and thought that was how VIX Central calculated it all the time (I guess looking further out). Didn't know you calculate by M2-M1/M2 for daily rates. lol - now my head is spinning. I will run through the numbers. Can you give an example and plug in the numbers so that we all can learn. Thx. I will and post it here give me just a little time, my wife is expecting me to make some money today haha
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Post by theMist on Jan 10, 2017 14:05:55 GMT -5
So far this move higher is rounding out and forming possible RS. Added another 1k long UVXY so (6k out of 30k max). At least I got the extra shares when red. My average is now UVXY 6.40 I'm liking it especially with Walnut's daily contango rate and advice that its not good to be short VIX SCAMs right now. We make a good team all of us. I'm thinking S&P rolls over now, possibly with a strong overnight move into tomorrow. Updated S&P 15 min Chart
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Post by theMist on Jan 10, 2017 14:27:29 GMT -5
Have to go guys. Check in with you guys later when I get back. Good Trading All!
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Post by birthmark on Jan 10, 2017 14:50:19 GMT -5
Grabbed more UVXY at 6.35 (500 shares)
GL
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Post by novie08 on Jan 10, 2017 16:08:43 GMT -5
Just saw Trump will hold a press conference tomorrow at 11... Scuttlebutt is that he's going to stage a "Muppets vs Angry Birds" altercation to see who wins my money's on the Cookie Monster. Only posted that b/c was wondering how it might affect markets...after all, they're calling this the "Trump rally".
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Post by walnut on Jan 10, 2017 16:18:14 GMT -5
How to calculate the expected daily drop of VXX (or UVXY):VXX and UVXY are based on *S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index")*. VXX adjusts it's holdings on a daily basis to match this index. You can check the current composition here: www.ipathetn.com/US/16/en/details.app?instrumentId=259118as of 1-9-2017 the portfolio was 73% February futures contracts and 27% January futures contracts. The portfolio is adjusted so that it always has an average expiration of one month. Feb contract is 14.45, Jan is 12.93, and Vix spot is 11.55 So, the January portion: ((12.93 - 11.55) / 12.93) = 10.7% drop, divided by 10 days left to expiration, which is 1.07 % per day. February portion: ((14.45 - 12.93) / 14.45) = 10.5% drop, divided by 28 days which is the difference between these two contracts, .375% drop per day. So, 1.07 daily drop x the weight of Jan component is .27 = .29% drop per day .375 daily drop x the weight of the Feb component is .73 = .27% drop per day .29 + .27 = .56% drop per day for the index. VXX mirrors the index, so the expected contango drop indicated this morning would have been .0056 x 21.80 = 12 cents That drop is built into the daily price movement, even if the stock were to go up over the day. But this is only an expected value, based on those prices at that moment. The vix index changes over the day and so the calculation is always changing, like contango. And since the contango curve is not a straight line, this calculation would not capture the small degrees of change on the term line between the dates. But this calculation should be close enough for practical use during trading.
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Post by jacksrbtr on Jan 10, 2017 16:22:26 GMT -5
Well Continental Gold wound up closing down 3% after clawing its way back from an 8-9% disaster. In the immortal words of a +90yr old NASA Emeritus Scientist I know who escaped Nazi Germany, fought in the Greek Resistance, immigrated to the US studied physics becoming one of our best astrophysicists: "Things can always be worse."
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Post by walnut on Jan 10, 2017 16:56:19 GMT -5
Remember though, that 1/2 % a day will add up quick if you mis-time going long, especially with 2 x UVXY. And the futures could drop relative to VIX, and also that VIX could continue to drop a little more too. So the scams do have some room to drop actually, be careful.
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Post by theMist on Jan 10, 2017 17:40:16 GMT -5
Awesome stuff Walnut - I got the January and February portions - BUT just one question (not sure if you posted already) - where/how are you getting the weights for Jan. and Feb. (.27 and .73 respectively)?
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Post by walnut on Jan 10, 2017 17:47:08 GMT -5
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Post by theMist on Jan 10, 2017 17:55:08 GMT -5
Got it completely now. Like I said awesome stuff! You should post the daily contango rates on the board every day when/if you have the time.
But I fully understand how to calculate them now myself.
Thx for the lesson
BTW - Posting it on the VIX ETP thread just so easy to find going forward
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Post by theMist on Jan 10, 2017 18:06:39 GMT -5
There are a few smart options traders over there at Yahoo MSG Boards. One of them is looking into this hedging option. Let me know your thoughts on this hedging method-
As a hedging, "the only thing I can think of is to buy call options on UVXY 3 months out and 2 times the current price. I could still only short with about 30% of the portfolio and the hedge would cost about 10% every 3 months. I currently do this by selling weekly in the money calls on UVXY and own way out of the money calls 2-3 months out. If the call you sold is still in the money on expiration, just roll to the next week. It returns about 100% (on the margin capital) every 6 months in the current environment. It would return twice as much in a VIX 17-20 time period. It is a temporary loser in a VIX 20+ environment. If that environment lasts long I haven't figured out exactly what could be done. I am experimenting with a very small portion of the portfolio"
Would this model work if we have prolonged selling in S&P and VIX stays elevated over 20 for few weeks, months, years, and VIX Futures maintain backwardation (i.e., the big one) - I think this model blows up.
Thoughts?
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Post by walnut on Jan 10, 2017 18:34:35 GMT -5
I looked this over, and at a quick glance, I will summarize:
When the market crashes I think that this blows up. The delta on the short ones is going to spike way faster than the long ones because the short ones gamma is higher. He will not survive it, I don't think.
I would need to study it more to pin it down exactly, but that is what I think at a glance.
There may be more to it than I am seeing, I will look it over more later.
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Post by theMist on Jan 10, 2017 18:51:00 GMT -5
BTW - Walnut you are far smarter and more experienced than I am. This is my semi retired day job which I love to do for fun at home. lol You should be telling me how to trade. Thx again for all the info Much appreciated Here is a picture of my home setup. I find its more than sufficient for my trading and like to keep things as simple as possible - maybe could use one more monitor.
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Post by walnut on Jan 10, 2017 19:00:24 GMT -5
Wow very nice
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