VIX Futures for Autists

by IsNullOrEmptyTrue

I’ve noticed a few of us autists likes myself have had questions regarding VIX and a couple of it’s related derivative funds, VXX, XIV. I would like to share some information to help clarify things and potentially be clarified by smarter autists than me.

This post may be a bit derivative (pun) and for that I am sorry. I’ve marked this post as DD because I got a big dick in my trousers and it’s got a nice curve that points straight up.

Tldr: VXX $37c 3/13

Background:

Trading VXX is not trading VIX. In fact, you cannot trade VIX directly. You can only trade using derivatives of VIX, such as futures, options, ETFs or ETNs (1). The ticker symbol for INDEX:VIX is $VIX.X and options holders should be aware that it trades European style. That’s the thing where you swap spit with your partner’s Italian lover.

For the special retards among us who don’t know what VIX is, go Google it now, dummy. Because, if you don’t know that VIX is itself based on S&P 500 options interest then shit is about to get very weird pretty quickly because this means that when you buy or hedge on VIX derivatives you are basically trading a derivative of a derivative of a derivative (1). Mind=blown.

It will benefit you to think about where other people are hedging on VIX, and by extension the S&P 500, because VXX leverages options interest on VIX. It is important to know that VXX is a derivative fund of VIX futures. It is based on VIX but it is not VIX. You should also know that VXX had a now defunct twin named XIV, and they blew eachother on occasion.

In fact, there are quite a few other ETFs and ETNs that are derivatives of VIX, which include VIXY, VIXM, VIIX, EXIV, VXZ, not to mention the leveraged ETFs TVIX and UVXY. Unless you like shooting cocaine directly in your dick I wouldn’t mess with any of those.

VXX buys the first two months of VIX futures while it’s less sexy twin XIV sells short the futures contracts of VIX (2). The fluctuations in price of VIX derivatives values lead to a sexy situation known as contango and backwardation, which also just so happens to also be the names of the sex positions my wife learned from her new boyfriend, Francesco. He’s pretty talented.

Right now we are in backwardation which just a fancy way to say that near term futures are more expensive and futures curve of VIX is downward sloping (3). This boosts the sale of VXX and drops XIV’s feet in the air. Eventually VIX futures swap positions and the opposite action will happen. VXX will be bottom and XIV will be on top. This is when VIX goes contango, which is when near term VIX futures are cheaper than longer term VIX futures (1). When they swap they touch eachother and that can be fun to watch.

Strategy:

A contagion like CoVID-19 creates a situation where the long term outlook isn’t ideal and we expect further volatility. We expect that the market will be overvalued in certain assets based on the future assessed value of a stock so the futures and options interest for the S&P 500 fluctuate. If shit hits the fan now what will happen to earnings reports in the Spring? This leads VIX to rise which in turn allows VXX to bend in ways you never thought imaginable.

Positive changes in VIX tend to be less frequent, but greater in size than negative changes (1). VIX will rise pretty quickly and drastically and fall at a slower pace. VXX moves similarly against the price movement of VIX since it is based on VIX futures.

Do you think that earnings reports or some other information will quell the fear and entropy of how COVID will affect things and the difference between S&P 500 put and call volume will point VIX downward? If so, then keep your puts on VIX, or better yet try trading on SVXY. If you think that over time new information may still lead to misgivings about the future of the markets over the long term then buy calls on VIX or trade VXX. You also can buy calls on VXX, which is what I do because I think it provides me more time to pull out (6).

Sources:

(1).www.macroption.com/trading-vix/

(2). qz.com/1066015/the-vix-vxx-svxy-and-volatility-linked-etfs-betting-on-risk-is-risky/

(3). tradinggods.net/what-is-vix/contango-and-backwardation/

(4). www.macroption.com/vix-futures-curve/

(5). www.macroption.com/vix-calculation/

(6). My ass.

Edit:

I am an idiot don’t follow my trade you dummy.

Also, VIX and it’s derivatives suffer from decay over time so holding them is not a wise option unless you are trying to leverage the decay via puts but only Einstein’s know how to do that move.

Also, XIV is defunct now. I thought it was reissued along with the new VXX and I was wrong. Go ahead and spank me like the naughty boy that I am.

Changed flair from DD to fundamentals because I don’t want you idiots following my shitty moves.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

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