patrick.net

Spot on analysis.

Yeah volatility won't come back for a minimum of 3 months. Get used to this market environment for foreseeable future.

This means I will likely keep my recent gains for now, right?

I think VIX is distorted by volatility futures and ETFs.

You have to look at the Smile and the term structure.

Peter P says

I think VIX is distorted by volatility futures and ETFs.

You have to look at the Smile and the term structure.

Yeah, the vix cash is just easier to access and follow. You are correct though, the daily prints are slightly misleading, especially on fridays and mondays.

Graybox says

CBOEtrader says

Yeah, the vix cash is just easier to access and follow. You are correct though, the daily prints are slightly misleading, especially on fridays and mondays.

Not as many traders trade on Mondays and many are done by 11 on Friday leaving consensus on the lean side.

Theres more than a few reasons that closing vix values are a bit off. The main is simply the pricing mechanism of the vix. Vix cash is calculated on a calendar days model, thus overestimating time to ex on fridays and underestimated on mondays. This deflates vix in friday print and inflates it on monday. This is why vix settles on wed AM, btw. The middle of the week doesnt have this phenomenon.

Vix futures will also settle at odd values, mostly from the etf rebalancing. VXX for example rolls 1/22nd of their position from first vix future to the second each day. That TAS (trade as settlement order) ALWAYS pushes the vix futures to an odd spot at settlement. As a vix futures market maker, I used to make 30% of my money trading that one single structural mispricing.

Im sharing my vix term structure modeling secrets :)

The first chart is future price minus cash in less than 12.5 vix environments. The second chart is vix next future minus starting vix future, charted by days to expiration of the first vix future in all vix environments. It measures the vix futures spread values between two consecutive futures prices. the deep red are inverted spreads during super high vol environments. You can see how rare backwardation is in vix term structures. Contango is the norm in 95% of all market environments

I am just a student of the market...

Volatility is pretty much the only asset class nowadays. The entire world is short gamma. It will be fun to watch how this unfold.

BTW, I'm building a visualization tool for realized vol under various trading regimes.

Peter P says

BTW, I'm building a visualization tool for realized vol under various trading regimes.

I have done that research in every way imaginable. I am happy to share my results and /or share my excel/VBA/SQL/Csharp tools i built to get you started. I could probably put you many years ahead.

Graybox says

Very few realize how true that is.... Very few.....

This is an excellent article:

http://www.cboe.com/rmc/2015/asia/Chris-Cole-slides-RMC-Asia-2015-Artemis-CBOERMC-December12015.pdf

Graybox says

Very few realize how true that is.... Very few.....

Yes this creates a strong, under-performing leptokurtotic phenom. It would take a really big event to wake the market from its current bull slumber.

But when it does wake up it will outperform.

Vix is a product that you sell low, and buy high.

CBOEtrader says

It would take a really big event to wake the market from its current bull slumber.

I afraid that bull is a zombie.

Watch vix 12.5, 17, 22, 29, and 37 for historical market environment shifts

https://drive.google.com/drive/folders/0ByQo56ra3X_sMHJUYVcyVHZnTzA

that weimar vix chart going to 2000, haha. the world would implode if that happened to the dollar.

Graybox says

Peter P says

This is an excellent article:

http://www.cboe.com/rmc/2015/asia/Chris-Cole-slides-RMC-Asia-2015-Artemis-CBOERMC-December12015.pdf

Thanks it looks interesting.... I'll take some time and study the info.

I just read through that presentation. The author's point was to emphasize the need for long vol after the August 2015 incident. The author was missing a huge piece of the puzzle though. I could have told you we had a ways to drop before indicating a risk regime change.

Graybox says

CBOEtrader says

I just read through that presentation. The author's point was to emphasize the need for long vol after the August 2015 incident. The author was missing a huge piece of the puzzle though. I could have told you we had a ways to drop before indicating a risk regime change.

No price confirmation in the 1st place so no follow through on a non-event, no sustained bear market.

very succinct, yup

Graybox says

The dollar is very misunderstoo

The dollar is too big of an idea to understand. To many factors, too many unknowns... show me who understands the dollar and how to look at it?

CBOEtrader says

The dollar is too big of an idea to understand. To many factors, too many unknowns... show me who understands the dollar and how to look at it?

Your right no one can understand all things $ however there are some basic simple attributes easily forgotten, unseen or ignored by many.
Such as it is the standard of currency and it belongs to the worlds largest and most liquid markets in the world. I mentioned somewhere in my posting that
the problem many will have is they will be trying to follow the "risk off" trading environment and that money flows would be in disagreement with that line of thought
for US traders/investors.

If you are watching, you should see the risk off setting up. It wont happen for a while