Felix Salmon is doubtful about whether it is possible to hedge tail risk, and I wholeheartedly agree with the data he cites showing that, of eight major asset classes, only volatility and managed futures offer genuine non-correlation to market returns. In fact, I’ll go a step further: I’m not that enthusiastic about the benefits of managed futures, at least in their current form. As a registered commodity trading advisor, I’ve seen the sorts of strategies that most of…
Equity investors who want a broad-based hedge have essentially three vehicles from which to choose: equity index options (SPY, SPX, ES, etc.), VIX futures (or their ETF permutations), and VIX options. In this piece, Larry McMillan makes the case for using VIX options instead of SPX derivatives, and this is his best argument:
In my opinion, the purchase of VIX calls is a much better, more dynamic way, to approach protection. That is because VIX will explode…
My colleague at Expiring Monthly, Adam Warner, has taken people to task over the last several days for obsessing over the VIX, and especially for misapplying it:
OK, what’s wrong with this statement:
Look at that…$VIX drops below 20 and pigs fly again. Only reliable indicator that I know of that level.
If you answered “everything” you would be correct. But let’s see how far off the reservation someone can go in 140…
If you hold a position larger than a specified threshold in a futures or options contract that is regulated by the CFTC, your clearing firm must report it and classify your position as either commercial or non-commercial (I prefer the clarity of the old “hedging vs speculative” language, but whatever). Futures traders have been tracking these reports for years, but I’m not aware of any studies that analyze the history of VIX futures commitments, with the exception of a…
One average of the volume of contracts traded in VIX futures recently exceeded the level observed during the financial crisis of 2008, indicating that sophisticated traders and investors may be preparing for an end to the recent run-up in equity prices. The chart below shows the volume of trading in VIX futures (VX) since January 2008, along with a 20-day simple moving average of that volume; as evident there, the average volume in recent weeks is greater than at any…
Wednesday, July 14, 2010
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