As with all trades this is not an exact science, careful judgement, a proper trading plan and a very clear risk/reward strategy needs to be followed , but in simple terms if the S P 500 is dumping. Revenge trading, or any trade taken on the basis of emotion is extremely likely to work out badly and just add to your losses. However, more in line is not the same as in line. For a primer on this trade, see previous articles here and here, but in short its an attempt to profit from the bias of investors to believe that market volatility in the future will be greater than. However, as many have observed the tvix had a pretty wild ride this spring. Halting the issuance of new shares broke the mechanism that tends to keep funds trading in line with underlying value, and in a tulip mania moment, the market bid the price up to an 89 premium to fair value in just a few weeks. Catalyst for Change, it seems reasonable that the current regime of 5-15 premiums will continue until either (1) leveraged ETF speculators become rational, or (2) Credit Suisse fully opens the window to authorized participants that are able.
1, tvix trading strategy
Its worth reiterating that the short tvix trade is not a risk free arbitrage, simply a favorable risk/reward tradeoff. Hempsteads notes are a great read for any sophisticated hedge fund trader: View this document on Scribd. The volume dropped off and it never really looked likely to come back, and as you may know by now I dont stick around waiting/hoping for a turnaround the longer Im in a stock the more at risk I feel. You can still profit from the long side, just like a lucky blackjack player can make money on a blackjack table that pays 6:5, but the smart player stays away. You are a risk manager of your own account, so why risk your funds on something that isnt meeting your criteria? Its worth noting that the compression of premium has tended to happen by the mechanism of tvix market price rising much less than would be implied by changes in the underlying value, rather than any outright selling off. Warning Not a Risk Free Arbitrage. For more than a month, hedge fund traders have been attempting to arbitrage the dislocation in pricing-and more than a few had based their strategies on the premise the creation process would not be resumed. . Now, as the momo scanner wasnt giving me anything, and overall the market was looking very slow and choppy I made the decision to leave it be and walk away green. With my initial reasonably hefty loss I could have so easily got frustrated and forced another trade to try and negate the loss, rather than as I did sit back and wait for the quality setup to present itself. If the short term volatility index on which tvix is based continues to fall, this number will get lower and we may see further share creation that leads to selling pressure as the lucky specialists cash in their golden ticket. So today I grabbed a decent initial trade on tvix and followed it up with a couple of smaller scalps to make back my initial loss and finish up 675 on the day, and all within 1hr 12mins of the open.
Knowing when to walk away is so important. VXX ) or long xIV ) as ways to profit from steep contango, but there is, in my opinion, a more compelling way to profit from contango, short (. If it falls, however, longs in the fund may become impatient, and Credit Suisse may become bolder about putting more shares on the market. Since I have zero expectation of the former, the reversion trade hinges largely on timing of the latter. If its not an ideal setup, its not a trade, simple as that! And it got broken in mid Feb when CS halted the creation process for this product. The market has been taking a serious hit lately, and whilst this can sometimes restrict a long biased traders options as it can have a knock on effect with other stocks, it can very often mean that tvix is good trade.
If volatility does spike tvix trading strategy as it most certainly can do, tvix will spike as well and the rising value of the CS exposure would make new share creation less likely. Today has been a fairly lacklustre Monday for the Stock Market, slow and choppy pricing action and nothing that I really like hitting my scanners so it could have easily been a red day, or a no trades day. All trades have to play out according to the plan, and if it hits my stop or just dries up then the plan says Im out and waiting for the next setup. For those not familiar with the fund, in February the funds sponsor Credit Suisse temporarily halted creation of new units of the fund in response to skyrocketing demand and ballooning risk exposure for. In the approximately three months since CS resumed share issuance, the relative premium (discount) to fair value of tvix trading has ranged from a 17 premium to a 2 discount. Specialists/authorized participants would jump at the chance to buy at indicative value and sell at market, so the key decision-maker here is the risk management folks at Credit Suisse that decided to tap the brakes back in February as they watched. Are there other products that display the same unusual premium to NAV features?
This level of discipline and patience is what keeps you on the right track. When I trade tvix (VelocityShares Daily 2x VIX ST ETN) I do it very differently to a normal stock. Laters, Al, so this is pretty much how my day went. Hempstead suggests that hedge fund traders who are dabbling in volatility-flavored products should take a second look at Market Vectors China ETF pEK ) as well as ProShares Trust Ultra VIX Short: uvxy, barrons Brendan Conway offers one of the. Let me know how youre finding out there, and as always, trade safe. Similarly on May 30th when the underlying index rose 21 in one day the tvix rose only. Video tvix - t - Flash. As with all trades this is not an exact science, careful judgement, a proper trading plan and a very clear risk/reward strategy needs to be followed, but in simple terms if the S P 500 is dumping. Credit Suisses volatility-flavored ETN, the VelocityShares Daily 2x VIX Short-Term ETN, aka. Tvix is, for lack of a better phrase, broken. And it got broken in mid Feb when CS halted the creation process for this product. June 19, 2012 Contango is Back The volatility futures curve is back in strong contango, and with it an opportunity to profit from the short trade on volatility linked ETFs/ETNs.
Trading, tVIX and knowing when to leave
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