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Bearish VIX Bets Surge To 2010 Highs
One of the more notable 2010 "highs" achieved recently (and in a year when pretty much every metric is trading at or near all time highs, thanks to the Fed becoming the primary market maker in virtually everything), is the surge in Net non-commercial speculative positions in the VIX futures, which also confirms the latest bandwagon trade du jour. At -17,181, the net outstanding bets are at the most bearish for 2010, surpassing the previous record from August 17. However, while then the market was plunging, and the bet was a contrarian one, now it is one of momentum chasing, as pretty much everyone expects stocks to continue going higher, leading the VIX to plunge to fresh lows. So far it is working. Of course, as it the problem with every bandwagon trade, the second someone blinks and the direction in stocks is interrupted (and it will unless stocks continue rising every day from now until the last POMO officially takes America into a Fed-facilitated, ponzi-driven hyperinflation), the unwind will be vicious, as these are levered bets on what is basically a second derivative on stocks, which in turn are a first derivative on stocks. Anyone who wants to bypass all the daily noise and put a big bet either way, should just go the 4th or 5th level of leverage, and merely bet on whether this trend in record VIX bearishness continues, or, if it will stall. And since everything is now predicated on the moves in the dollar, and thus the EURUSD, the only question is how long will Europe tolerate incursions by the dollar in the 1.40+ space, which results in big losses to Germany's export sector, and thus, a very angry Angela Merkel.
Chart below per the CFTC's Commitment of Traders report.
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How the hell do you hedge a VIX future? Long/short a basket of S&P options?
you can't really. it is a contract on future (forward) implied variance. in order to hedge it, yyou would need to be able to trade a strip of forward starting spx options...
I guess I'm really wondering: if you want to go long/short volatility is it ever better/more economical to get involved with the index options directly? I know the VIX ETF(s) don't track very well like many of those things. The old VXO calculated off the OEX at-the-monies was easier to grasp!
buy/sell straddles on the underlier, i guess (e.g. on SPX or SPY).
you can even hedge weather reports now. So why not the vix?
hedge...gamble...invest.... the lines are getting really gray.
It's very straightforward. You can hedge a vix futures position using vix options, or vice-versa. They are European-style options that settle on a special opening quotation on a Wednesday, same as the VIX futures.
Actually very fun to trade both of them.
Remember kids, never be short gamma. :-)
the only question is how long will Europe tolerate incursions by the dollar in the 1.40+ space, which results in big losses to Germany's export sector, and thus, a very angry Angela Merkel.
They'll tolerate as long as the US tells them to. They really don't have a choice.
Merkel is getting cranky. She is also putting the heat on immigrants (turkish). If She is getting cranky due to unsettled populist winds coming from the voters, this will be an interesting fall/winter.
Frau Merkel, in castigating the Turkish immigrants, and by extension the incursion of Moslems into Europe in the past generation, is closing the barn door long, long after the cows left.
http://www.foxnews.com/world/2010/10/18/russia-woos-france-germany-secur...
I was gonna vent, but I'll wait until RoboT pimps a big pop in LuluLemon or LVMH. What's the ticker for Looney Tunes?
Which is why I'm long VIX
Angry Germans?! ...: First, the Sudetanlande, then the Hapsburg Regions, then Konigsberg! :P lol
Remind me again, how many Frenchmen does it take to defend Paris?
There's a better way, just buy front month SPY puts when VIX is low.
VXX has a lotta juice, gamblers. I have not traded it yet, thankfully.
Vix market sell signal last week + I think the Hindi's are still valid. I'd rather be on the sidelines or long the VIX here than playing the bearish VIX trade.
For those interested in Reggie Middleton, who is a contributor here on ZH, here is his CNBC appearance this morning. Barely three minutes, but he does expose the TBTF banks.
http://www.cnbc.com/id/15840232?video=1618325359&play=1
He looks very credible in that blazer!
Can we please have some art work of WB7 in a blazer being interviewed on CNBC trying to explain his art work to the brain dead Herb Greenberg?
OK, if that's too much, how about just a self portrait in a blazer? You're not credible without the blazer. :>)
Its green with shamrock buttons on it. In-credible!
I want to play VIX and FAZ. Gotta tell myself to hold off for a week, it's just not time yet. Ahhh, that VIX is callin me though!
Monday Music, Steak and Shake:
http://www.youtube.com/view_play_list?p=438A49417E0A53F7
This is my default market theme song these days...
http://www.youtube.com/watch?v=A77wROehs9U
Conrad Murray; yes, that VXX will move a piece if we ever get a correction. VXX has options too; the long-dated looking rather attractively priced.
LOL -- most excellent!
+100
Too funny!
The point is that there is a VIX future contract in the first place. It shouldn't really exist. It's only purpose it to facilitate gambling. It has nothing to do with stocks and values. It is a new derivitive that needs to be trashed along with so many of the same so that we can return to the sanity of a real futures market for real, physical commodity hedging purposes. The VIX contract is simply syptomatic of a financial,...world wide, having gone completely mad. And it has to be entirely dismantled before sanity and real wealth production anywhere on this earth can commense.
What America,... what the World requires,.... in a New American Revolution that re-institutes the core philosophy of 1776. A Revolution is quick approaching, it will be up to all of U$ to move it in the right direction. I'll be doing my part and maybe more.
Yep, may as well just be a roulette wheel.
can be useful to hedge some really crazy stuff.
If you had a lot of money (I suspect from your comment that you probably don't), then VIX calls might at certain prices be a great way to hedge your tail risk in the event of a market crash.
My job is to help people to make money and not lose money; I therefore am very happy that these products exist, as are those I work for.
It's good to see that the non-commercials are so net short the VIX; that means the banks are net long the VIX, which they should be, so if the shit hits the fan, they won't need a bailout.
Like I said, there will be no selloff heading into the election. It's all rigged to the upside....GET SOME FREE MONEY BUY ANY AND ALL DIPS $$$$$$$$$$$$
Can't fight the Fed.
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Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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