+1: Especially in volatile markets, retail investors have no way of knowing how/why the vol moved so much in such and such strike region. That is mostly because they don’t even get the same information we do. So yeah, be very careful.
Hmm, I agree it’s necessary to take financing charges into account, and oportunity cost of tied up capital, but those time frames have never happened. VIX goes to 30 occassionally, 2010 flash crash to 45, 2011 selloff to 50, 2008 subprime meltdown to 100, and 1987 black monday 150. Futures and VXX don’t seem to spike as high as VIX though, and the lengh of time is usually very short, although it can in rare cases stay elevated for months.
Rare Events: http://nastrading.com/vix-index-and-futures-performance-during-extreme-events/ Price history: http://en.wikipedia.org/wiki/VIX#mediaviewer/File:VIX.png I hear what everyone is saying (most of it I get, though some of the technical is over my head). But I still don’t see why people with good market instincts can’t make money here consistently (via shorting peaks). So I modeled it out… If you short VXX when VIX is performing a mildly-high peak in 22-25 range, you need around 3.5X capital to survive a VIX=100 event. For example if you short $10K, you need $35K cash total to hold thru a possible disaster event. Really that should be more than sufficient to survive a subprime-type collapse since the ETF is not as volatile as VIX. Return as calculated on the full 3.5X capital would be around 3.5% and take around a week (in the vast majority of cases these peaks settle in a week or so, storms don’t blow forever). So if you bang this out 4X a year on “OMG Ebola!” type peaks that’s a 14% return assuming VIX=22 peaks, more if you time a 30 peak, and massive money if you time a 50 peak. Also this capital IS NOT tied up for the full year, it is only tied up during VIX peaks, you can use it for other short-term moves when VIX is in a normal range. However if you did this for years you would eventually short too early on what seemed irrational fear (ebola) or freak-event (flash crash), but it would turn out to be a true crisis. Since you have the capital you are fine. But 1) you would need to hold for maybe 6 months max which would cost you say 1% on the 10K, plus opportunity cost on the 25K, 2) when asset prices bottomed out you could not use this capital to go on a buying spree, but 3) having missed the peak the first time, you could use additional capital to double up and short a second time. Let’s say this freak event happens every 2-3 years. Well guys, that’s still pretty good money, especially if you are in a sideways volatile market and have cash to play. What did I miss here? As an experiment I shorted VXX @ 36.82 on Friday (nailed the interday peak). S&P500 returns are going to suck, and I think the market is schizo torn between irrational optimism and reality. But soon that settles down, perhaps good news on a few earnings next week, and I make a fat return by covering @ 31.85, OR this starts the end of the bull market and my position goes hella red. 
Update: closed it out in pre-market for an easy 3% gain. Didn’t feel like pushing my luck in this schizo-market.
You missed this part:
- you would need to hold for maybe 6 months max which would cost you say 1% on the 10K, plus opportunity cost on the 25K
You’ll lose more than 1% over six months from the roll-yield. More like 40% would be my guess.
New and improved products from Accushares:
VXUP
VXDN
Lose less to roll yield. These are brand new, so arbitrators need to step in and set the NAV to actual market value.
VXUP/VXDN, interesting concept. But seems like the prices will deviate a lot from NAV when buy/sell is not balanced.
Edit: Wait, I guess there is no NAV, since the fund does not actually hold underlying securities.
VXX just keeps going down, down, and more down. Would have made a fortune if I had the balls to hold my short…
nice topic 
Be aware of huge rolling costs of VIX future!
VIX is US (SPX) at the money 30 day volatility, very restrictive, why do you want to trade exactly it?
Have a look at 6 months to 12 months vol, curve looks better
(esp in Europe now - DAX, Eurostoxx vol, single stocks,
look at euro vol coz of Greece, IMHO you better short it (as spread to VIX) instead of just shorting VIX lol)
I personally like more options in most cases - have a look across all strikes, also nice play on delta possible.
Well for one reason, you would have made crazy returns if you shorted it back when this thread started. That seems like a good reason to me?
sorry for late response, what time did you want to short?
give me levels, and returns %
See, if vol spikes, you have no proper protection, although VIX is not soooooo dangerous as single stocks, where vol can jump overnight (like in 2008), when dispertion trades (bet on correlation) killed lots of volatility traders.
no I understand, but why do you want exactly do VIX? exactly 30 day ATM US volatility
just because you can tradevix futures?
Yes, just availability of easily-traded ways to bet that crazy volatility spikes will not persist, VXX seemed like the best of the crappy options available.
VIX is not a measure of volatility. It is a measure of 30 day implied volatility (or technically, the square root of implied variance), that is, *how much people are willing to pay for volatility* at any given time. It’s more accurate to say that VIX is a measure of risk aversion than it is a measure of volatility. If SPX goes up 50 points tomorrow, VIX will fall.
If you want to bet on actual volatility spikes, you would have to buy near expiry options, which will return positive PnL when realized volatility is above the implied volatility at which you bought the options.
VIX is not really the 30 day implied volatility of ATM options either. It’s actually like the sum of implied volatilities of two expiries, weighted by time and by 1/K^2. Due to the strike weights, the actual value of VIX should be slightly above that of normal implied vol.
It is more likely that you’ll be hurt in single stocks due to M&A news (or just rumour) or any other corproate action - remember Volkswagen?
I’m just going to keep shorting VXX peaks, I don’t do derivatives.
You’ll be fine until the day you get it wrong.
Naw, I modeled it out yo…
But if you short VXX peaks, you are trading derivatives. VXX invests front and second month VIX futures, so you are actually selling futures.
Okay word splitters, thanks so much for telling us what we already know in great detail. Now I’m going to get back to making money…