8 Reasons Why One Hedge Fund Is Keeping A Long VIX Position On

Tyler Durden's picture

With stocks soaring, now that the "Brainard" risk factor has been fully unwound after the Fed governor's surprisingly dovish speech which has essentially killed any probability of a September rate hike and unleashing today's ""Violent Rally In Risk" Today" as predicted earlier, one would expect that there is only smooth sailing not only until the September 21 FOMC meeting, leaving only the post-election December 13-14 Fed meeting potentially in play.

Still, at least according to one advisor, GS Banque's Loic Schmid, it is prudent to keep some volatility protection on after the recent risk-off episode. As a reminder, in mid-July Schmid suggested buying the VIX, a trade that has been profitable ahead of the Friday surge...

... and while he says that he is taking profits on half the position, he is also keeping the other half on for the following reasons:

  • Greek debt problems >>> back on the table again
  • Uncertainties overs interest rates/credit market
  • Italy’s constitutional referendum >>> October
  • Hillary Clinton’s possible health problems >>> US elections
  • High altitude/valuations of US markets
  • Geopolitical tensions >>> China/Russia/US
  • Beginning of the end of Merkel’s era
  • Doubts arising on UBER & TESLA >>> engines of US Tech boom 2.0

One key risk factor Loic forgot, the one which most directly catalyzed the recent sell-off, is how and when the BOJ will pursue the steepening of its bond curve. With the 10Y JGB now parked precariously on the unchanged line, nothing has been resolved as far as the Japanese market is concerned, where as we reported before, Kuroda and Abe are now seeking a way to push up longer yields to provide some comfort to long-suffering pension funds and banks, desperately seeking some Net Interest Margin. It is this "inverse twist" that is now the biggest risk facing Japanese, and by implication - thanks to record high cross-asset correlation - global risk prices.

Indeed, as we said last week, any risk of a prolonged market selloff is to only be found with the BOJ, because as Loic notes, when it comes to the Fed, "it is interesting to observe that every time the FED might raise interest rates, equity markets sell-off…" And as everyone knows by now, the markets win every single time.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
DetectiveStern's picture

Sorry this is OT, might help his VIX I guess, but things are getting a bit crazy. ABC ran a story about Clinton dying. Here's a Youtube clip not sure if someone could fake this...

https://www.youtube.com/watch?v=BcVkWK-rdS0

Also this Tweet.

https://twitter.com/Fixer_guy/status/775226672756854785

Baby Eating Dingo22's picture

Oh well I guess we'll just have to live with the consequences of sacrificing the Witch

It worked out pretty well for Dorothy

jm's picture

They are keeping a long VIX position so they can be blowtorched in the face again and again and again and again.

billhilly's picture

hey, after the first burn it really doesn't feel that much worse each time, you kind of get used to it...and I'm talking from experience !

jm's picture

Hey, I've been there.

I bought BMY after Opdivo failed clinical trial for expanded use.  Go ahead, laugh your ass off.

Bam_Man's picture

"recent risk-off episode"

One f****g day.

LOL.

USofAzzDownWeGo's picture

Good luck with that dude... The fed has obama's back and the market won't break down until the election. Which means your VXX, UVXY, TVIX will all crash to new lows every day and then do more resverse splits before the election. UVXY was $10 before Brexit, shot up to $14 and then went to $5, did a reverse split to $35.. now back to $19 and headed for single digits again. 

Coldcall's picture

Keeping long VIX positions for any length of time is just stupid right now. I bought my long VIX on Friday morning, made 25% and sold out friday close. I noticed yesterday, had i held into Monday would have lost almost all those gains. So I dont see the point of longterm VIX positions at the mo.