You can add location information to your Tweets, such as your city or precise location, from the web and via third-party applications. You always have the option to delete your Tweet location history. Learn more
Feel like I should put some more quant finance content up so ... here is the *absolute minimum* you need to know if you are considering trading VIX futures (or something basically equivalent like VXX or VXZ which are basically a basket of futures)
First important thing is that VIX futures give exposure to forward VIX, not VIX itself. You can have a correct view of where VIX is going but still lose money trading futures, because the futures price already includes market expectations of where VIX will go.
so if e.g. VIX is 20 and near-term futures are 23, to open a long position it's not enough to believe that VIX is going higher -- to make a profit you would need VIX to go above 23 *within a month* of you opening the position. If it goes to 22 you still lose.
In this example you lose 0.1 = (23-20)/30 of a VIX point every day, assuming that the term structure doesn't change. This is called *rolldown* and it's necessary to understand it if you want to trade VIX futures.
It's not sufficient though! There are many terrible "VIX carry" strategies out there which go long when rolldown is +ve (curve is backwardated) and short when rolldown is -ve (curve is contangoed) and ignore predictable movements in spot VIX.
Spot VIX is not tradable, which means there is nothing which stops it from being predictable. To profitably trade VIX you need to know what the rolldown is and *also* have a good model for how prices are going to change.
The right way to think about it is to separate the rolldown component of P&L from the price component. If F(t,T) is the price of a futures contract at time t with T days to expiry and R(t+h,T) is the P&L from holding it for one day then the equation relating them ispic.twitter.com/Tt1Mg966cg
This can be neatly decomposed into two components -- the first is rolldown (observable at time t when you trade) and the second is the price component (not observable, but predictable)pic.twitter.com/3ehBaxOevX
To model this you should build constant-maturity VIX curves by interpolating forward VIX prices to a floating grid of expiry terms (e.g. 1 mo, 2 mo, 3 mo) rather than a fixed grid of expiry dates. You then build a model to forecast the changes in constant-maturity forward VIX
for whatever forecast horizon you care about, and combine it with the observable rolldown to get a forecast for the P&L for particular points on the constant-maturity curve, which you can then interpolate back to a forecast for the actual contracts.
For obvious reasons I won't elaborate on how you should forecast price moves, but I will note that (a) the term structure itself is important and (b) constant-maturity VIX prices are highly mean reverting. Add your own intuitions on top of that!
My final point is that nothing I've said here is particularly specific to VIX, but VIX is a very clean example because the underlying is not tradable (so there aren't any arbitrage relations and everything is priced on expectation) and it's not seasonal.
With suitable adjustments to take arbitrage bounds and seasonality into account, this is a very general framework for trading all kinds of futures. FIN.
Gonna tag the vol nerd crew for their input @KrisAbdelmessih @Ksidiii @bennpeifert @pauleluard @SqueezeMetrics @NewRiverInvest @VixCentral @VolQuant @QuantVol @varianceswap @selling_theta
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.
