Simon Potter's Hate-Hate Relationship With The VIX

Tyler Durden's picture

While we first presented this chart over the weekend, we believe it is worth repeating the rather amusing correlation between the collapse in net VIX futures non-commercial spec interest (yes, the traded VIX, which courtesy of the New Normal's relentless synthetic reflexivity has a huge impact on the trillions in underlying assets: think massive leverage) as per the CFTC's weekly commitment of traders report, and the arrival of Brian Sack's replacement as head of the NY Fed's trading desk, Simon Potter, the same former UCLA Econ PhD who recently delivered a very ornate speech explaining central bank interactions with financial markets "through the prism of an economist." Now at least we know how said "interactions" look outside of "Market Manipulation for Econ PhD Dummies" and in practice.

And longer term: just as ridiculous

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XtraBullish's picture

VIX is just another "engineered product", a fee-grabbing piece of shit designed to drive retail out of the market. Throw it in the same dungpile as every ETF created and CDS, MBS, and everthing else Wall Street "financially engineered" in order to fleece the sheep.

DavidC's picture

Spot on. The tail wagging the dog, as with precious metal futures and oil futures. And LIBOR. Etc.


Stuart's picture

the whole market is just a trueman show.  HFT Trading 'bots controlled by the largest houses as captured agents of central planners.   The VIX is evidence of this. 'Do our bidding and we keep you out of jail'.

The trend is your friend's picture

VXX(long VIX) is down 1.5% and XIV (the inverse of VIX) is also down 1.5%????  Does anyone need any more evidence of the bullshit 

Dollar Bill Hiccup's picture


The Invisible Hand is spanking it nicely.

Getting Old Sucks's picture

Been here a little while and for the life of me, still don't understand exactly what the VIX is.  Anyone help me out?

Ralph Spoilsport's picture

Instead of trading on fear and greed, VIX allows one to bet on market volatility.

Getting Old Sucks's picture

So does one buy options on the VIX like they do ordinary stocks?

Ralph Spoilsport's picture

Sure looks like it from this:

Looks like a sucker bet unless you're an "insider".

Getting Old Sucks's picture

Thanks guys, I kind of get it now.  Indicator and you can buy into it.  Or as you say bet into it :-)

Everybodys All American's picture

Measure of volatility. Some consider it a fear indicator as well. Derivatives are priced off of the VIX as well. Also remember this is a manipulated index. Big time manipulated index.

Volatility is supposed to increase whether the market is making big moves up or down. It has not done this in years. I don't trust and don't use it as an indicator any longer.

Everybodys All American's picture

IMO ... what has been happening is that the VIX price has been supressed to give an indication that things in the stock market are ok and boring. I would tell you it's far from ok. In some ways it has probably been manipulated much like LIBOR and probably by some of the same players. LIBOR sets interest rates world wide and borrowing is priced from it. The VIX is one measure of volitility and fear in the stock market which does impact pricing on derivatives. Hope this helps.

DavidC's picture

Everybodys All ...
Not quite, It's a measure of Standard Deviation over n periods (on a daily basis it's generally, but not always, over around a 250 days basis, i.e. the number of trading days in the year.

If there trending markets, up or down, then the standard deviation can fall and the volatility go down. If there are choppy price movements the standard deviation can go up and thus the volatility.


Everybodys All American's picture

I agree. Thanks for the additions.

Pareto's picture

My understanding of the VIX index: represents the total put/call ratio of the NYSE, something like (Volume of Puts X Price)/(Volume of Calls X Price).  When the d(Vix) is > 1, implies increasing volume and price paid for puts written and bought, relative to calls.  When there is little to no change in the VIX, "they" consider this a complacent market.  When dVIX starts to rise it implies an increasing demand for puts (downside protection (bets)) relative to calls.  The layman's translation is that the bid - ask spread starts to widen, as those writing the puts seek greater premium than they otherwise would in a market that is complacent, and of course, those buying puts are also prepared to pay the higher premium as well.  thats my understanding of it.  cheers

Panafrican Funktron Robot's picture


How to manipulate:

Very good commentary on VIX trading:

The bottom line is that if you're looking for downside protection for a long SPY position, for example, or if you wanted to bet on short or medium term weakness in equities, simply buying SPY puts is a way less fucked with method to express that opinion.  VIX products were likely conceived in a special 10th secret circle of hell for the specific benefit of everyone selling those products, to the specific detriment of anyone gullible enough to buy it (yours truly included in said gullible fuck bunch).  


MeelionDollerBogus's picture

You can see the performance gains right on the scatterplot. 4x or more inverse to SPY using VXX, not sure about VIX itself for options 'n' such but VXX is fine IF you're not stupid.

The scatterplot shows a deeper -7x to -10x push down when SPY rises for a while, so that's the time NOT to hold VXX. You never need to care if vix/vxx maintains a long-term valuation if you only care about trading hedging. So long as it consistently moves -4x or greater to SPY when SPY is dropping, that's useful.

for those times VXX hits a big peak because SPY dropped so much, the smartest thing you can do is 30-60 days PUT. Think about it. VXX drops like a rock, you pocket some cash & do what you want, like schedule another golden boating accident. VXX puts far outpace SPY calls on the way up from SPY's bottoms,

vxx vs spy 01 zoomed out, see

vxx vs spy 02 zoomed in, see

JenkinsLane's picture

Free market capitalism in all it's glory.

101 years and counting's picture

so, the Fed would literally be blown up WHEN the Vix hits $30....$40....$50, etc?

oh, thats right, they'll just print more money to cover their ASS!

(and pass the losses onto the taxpayer)

Manthong's picture

"still don't understand exactly what the VIX is."

To the best of my understanding it's a casino for the herd to bet on the near term collapse of the market that the PTB can print unlimited money and secretly fund to keep from collapsing.

orangegeek's picture

Hey, guess what folks?  Dow was up 15 points this morning and has since fallen back a few.


Barry can't negotiate his little "cliffy deal" because he's too busy buying up over valued stock with taxpayer's dollars.


No "cliffy deal" is bullish.  The world's largest communist empire in history is capitalism's hope for tomorrow.


Isn't life grand?



asteroids's picture

Funny, the graph looks like someone is stretching an elastic band. I wonder what happens when it snaps back?

Renewable Life's picture

I dont know, but you don't want to be standing behind it, when it does!

Cognitive Dissonance's picture

It's all fun and games until someone pokes an eyeball out with those damn VIX forks.

<Put a cork on those forks boys.>

DavidC's picture

Good piece on The Slog about this as well today.


AndrewJackson's picture

At -100k contracts and a 20 vega move, the unknown short spec would have to payout 10 billion (assuming my math is right).

JenkinsLane's picture

"And sometimes I think some junkie nurse is stepping on my medication...."

Father Tom, Drugstore Cowboy

AlphaHunter001's picture


where is this info from, since this was not the data from COT - I just looked it up and it's about flat


also, there are many months of contracts, there could be a large calender spread


VIX FUTURES - CBOE FUTURES EXCHANGE Code-1170E1 Commitments of Traders - Futures Only, December 24, 2012

Total Long (commercial and non-commercial) = 311,293
Total Short (commercial and non-commercial) = 308,912


seems pretty flat to me

AlphaHunter001's picture


and btw: spreads are a large part of option trading - I trade options heavily, one has to be careful about 'reading' too much about volume. For ex. a huge trade in one contract could be hedged with the underlying instrument in addition to all kinds of complex strategies (butterflies, condors etc..)


one can have hundreds of positions, but with a very small net position