Shorting the Vix here...good idea?

[matts]

I'm no expert on vol trading, but looking at the long term chart of the vix, it seems like spikes of this magnitude never last.

 

I see TVIX is the 2x leveraged ETF with a 4% borrow cost at Interactive Brokers.

 

I'm thinking of making it a small short position that I can easily hold through much more volatility.

 

With all of the above, this seems like a relatively smart way to play the eventual passing of all this (however you want to define it: virus, overvaluation, general panic, algos)

 

Can someone please set me straight before I lose my shirt?

 

Thank you!

 

[Hielko]

Why not just sell some options if you want to be short vol? Is it somehow suddenly a better bet if you throw some additional layers of complexity on top?

[Gregmal]

Shorting the VIX(or derivatives of it) above 40 is a cant miss trade. Look for the ETNs with decay, even better. Just make sure you can stay solvent while the market simmers down. Otherwise, yea, its money in the bank.

[matts]

Why not just sell some options if you want to be short vol? Is it somehow suddenly a better bet if you throw some additional layers of complexity on top?

 

Fair point. I guess i liked the, again, relative certainty of what costs I would be paying,  The borrow rates are not changing much. Plus I would benefit from the leverage decay of the ETF while I wait, offsetting some of the cost of the borrow. Also, I like the targeted nature of the bet: Vix. Maybe the sp500 will only settle and not rise much quickly, but in that case, the vix would still come down a lot.

 

I'm not familiar enough with option pricing, deltas, etc to have the same grasp of "cost"

 

what option do you think is the best way to play it? writing an OTM put on the sp500 (to benefit from the currently high vol)? or are there options on the vix itself?

 

Thanks,

[matts]

Shorting the VIX(or derivatives of it) above 40 is a cant miss trade. Look for the ETNs with decay, even better. Just make sure you can stay solvent while the market simmers down. Otherwise, yea, its money in the bank.

 

Thanks. Ya, that sums up how I feel about is as well. I feel almost silly stating it though, so I thought I'd double-check with the much more experienced investors here.

 

I'm hoping someone can point out the flaws in this plan

[LC]

You could short those daily 2x or 3x levered long-VIX ETFs.

[TwoCitiesCapital]

As someone who sold puts on Friday, you may live to regret it

[montizzle]

Shorting the VIX(or derivatives of it) above 40 is a cant miss trade. Look for the ETNs with decay, even better. Just make sure you can stay solvent while the market simmers down. Otherwise, yea, its money in the bank.

 

This didn't age too well (I fully agreed at the time so not trying to criticize here). VIX now over 80

[TwoCitiesCapital]

Shorting the VIX(or derivatives of it) above 40 is a cant miss trade. Look for the ETNs with decay, even better. Just make sure you can stay solvent while the market simmers down. Otherwise, yea, its money in the bank.

 

This didn't age too well (I fully agreed at the time so not trying to criticize here). VIX now over 80

 

And now I'm beginning to want to ignore my own warning and warming up to the idea.

[Gregmal]

Shorting the VIX(or derivatives of it) above 40 is a cant miss trade. Look for the ETNs with decay, even better. Just make sure you can stay solvent while the market simmers down. Otherwise, yea, its money in the bank.

 

This didn't age too well (I fully agreed at the time so not trying to criticize here). VIX now over 80

 

And now I'm beginning to want to ignore my own warning and warming up to the idea.

 

Thats why shorting is just a tough game to play. How do you manage the risk? Position sizing. But then position sizing in turn makes your payoff much smaller. You can find puts, but thats then throwing a time line on the trade and in turn you can be right and still lose money. Or, you can go big, but then you can get Herbalife'd. This doesnt even factor in borrow fees.

 

I try to be very specific with shorts. Only go with you highest conviction ideas, and run the trade with the assumption it goes against you 5x. Thats typically how you want to size in. Just remember, if a traditional short, the more against you it goes, the bigger a problem it becomes.

[meiroy]

 

I never shorted the VIX but it does seem like a no-brainer (famous last words) here if it's done continuously, that is keep shorting more every day.  Wouldnt do it myself.

[LC]

Well, you could try to sell puts at crazy OTM prices.