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Volatility Trading Profile picture
@VolatilityVIX
Apr 11, 2024 • 7 tweets • 3 min read • Read on X
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1)  Why does $UVXY reverse split so damn often?

Well if it didn't the price would be completely un-tradable as it would effectively be 0

Yes, but why?  🤔

con't... Image
2)  Volatility ETPs don't trade based on supply and demand

It's best to view them as basically a formula, they all have a set methodology and they track underlying indexes

UVXY tracks with 1.5x daily leverage the SPVIXSTR index Image
3)  The SPVIXSTR index tracks the value of a constant rolling 1 month maturity VIX future  (VX30)

Essentially, where the front two months of VIX futures go, UVXY goes 1.5x the opposite on a daily basis Image
4)  In a stable market the front two month VIX futures  (M1 & M2)  will typically be trading above the VIX index and will gradually be shifting down towards the VIX index through the expiration cycles Image
5)  How often you ask?

As we can see, the VX30:VIX roll yield  (M1&M2 VIX futures prices vs the spot VIX index price) is positive on 82.83% of trading days

About 83% of the time the UVXY has a headwind and tends to bleed down Image
6)  Obviously that leaves 17% where the opposite is true and UVXY has a tail wind

During major market crashes the UVXY can spike violently!

1000%, 1500% maybe more in the next crisis

Obviously don't short with your eyes closed, it's NOT free money

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More from @VolatilityVIX

Volatility Trading Profile picture
Apr 25, 2024
🧵 Here's why you MUST start investing as early as possible

Race to 1 Million Dollars:

- Start with 0$
- You make an 8% annual return
- Inflation is 3.85%

If you have 50 years:

* You only need to invest 545$ a month to hit 1 million Image
If you have 40 years, the numbers start to look worse

- Now you have to invest 870$ a month to hit 1 million in 40 years

- And 42% of that 1 million was just your own $ monthly additions Image
If you only have 30 years:

- You'll need to add $1,470 a month now, which is stretching the budget of many people

- Also, 53% the 1 million you'll eventually have is just your own $ deposits Image
Read 6 tweets
Volatility Trading Profile picture
Apr 23, 2024
🧵 on using Cash VIX Term Structure as a general gauge of market risk

Everyone knows the VIX index, but did you know there are VIX style indexes for multiple time frames?

Below is what a calm market looks like:

VIX9D < VIX < VIX3M < VIX6M < VIX1Y

Perfect Contango Image
In a calm market with no fear, short term indicators should be lowest

The further out in time we go though we have to price in some uncertainty, so the longer term indicators should be higher Image
Here's what it looks like when the market is crashing

VIX9D > VIX > VIX3M > VIX6M > VIX1Y

Perfect backwardation Image
Read 7 tweets
Volatility Trading Profile picture
Apr 19, 2024
🧵 Selling naked UVXY Calls is DUMB!

Here's a really fun thread showing how a trader selling Naked UVXY Call Options would have lost 1 MILLION dollars during the pandemic

This is a cautionary tale for anybody who thinks this is a good idea...

We all know UVXY decays right? Image
2)  I've heard people talking about their layering systems where they divide their capital into pieces and only short naked UVXY Calls with the 1st level

Then they use the reserved capital to "defend" the position if it goes badly

Oh don't worry, it will go VERY badly  😂 Image
3)  The structure of the strategy sucks right from the start

Selling Calls already brings in small premiums, and you're only allocating 25% of your capital to the 1st wave

So with the high win rate of short premium, you're essentially making pennies on just 1/4 of your capital Image
Read 16 tweets
Volatility Trading Profile picture
Apr 17, 2024
🧵  Long-term the VIX index is -70% inversely correlated to the S&P 500

* When the S&P 500 is up, VIX is typically down, and vice versa

But short-term, the correlation is often positive

This is a thread showing all VIX:S&P correlation from 3 days to 10 years Image
5-day VIX : S&P correlation

Still plenty of positive correlation periods but do you see how it drops a bit? Image
10-day VIX : S&P correlation

The longer the time horizon, the stronger the inverse correlation gets Image
Read 10 tweets
Volatility Trading Profile picture
Apr 16, 2024
Long VXX when M1:M2 VIX futures are in backwardation  (<0%)

As you can see, the results are terrible!  Why?  Doesn't backwardation mean $VXX should go up?  🤔

VIX futures are in backwardation about 18% of the time.  That's Long Vol WAY too often

Let's filter it down  🧵 Image
Long VXX when M1:M2 VIX futures backwardation < -2.5%

Now it's down to 7% of trading days and the results are getting better.  Return is higher, drawdown is lower

Let's reduce that threshold even further Image
Long VXX when M1:M2 VIX futures backwardation < -5%

This occurs on 3.5% of trading days, and now the long-term rate of return is actually positive.  We're moving in the right direction here... Image
Read 7 tweets
Volatility Trading Profile picture
Apr 15, 2024
M1:M2 VIX futures contango / backwardation is a basic gauge of the pulse of the market

Let's check out the level of Contango through all major S&P 500 drawdowns in the last 15 years

Starting with the 2008 financial crisis 👇

VERY unpredictable before the bottom fell out Image
2011 European debt crisis:

This was pretty clean all things considered.  Backwardation during the entire period and when the market decided it was over, it was a clean break back into Contango Image
2015 China hard landing scare

This period was a mess with two distinct down periods.  August / September things got ugly, then recovered, and then really fell apart early 2016

This is a great period to use for backtesting the robustness of your Volatility strategy Image
Read 8 tweets

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