🧵 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 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

🧵 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 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

🧵 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? 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  😂

🧵  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 5-day VIX : S&P correlation

Still plenty of positive correlation periods but do you see how it drops a bit?

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  🧵 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

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 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

VIX futures settlement is a strange process where trading is closed on the Tuesday before expiration, but official settlement is determined based on the following days open

This means there's a price difference between your last available trade, and the final settlement value Historically, the difference between that final trade closing print and the official settlement value the next day can be double digit % change

It can significantly affect your trade!

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... 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

🧵  Seeing the rolling performance of "Short VXX" really puts things in perspective

It's not exactly a consistent vehicle.  There's a massive performance difference between stable market periods and crashes

Tactical trading ONLY!  No buy & hold people

Short VXX rolling 1-year: Rolling 3-year "Short VXX return"

Here we can really see the periods that include a major market crash like the financial crisis, and more recently the pandemic / 2022 market decline

We know Volatility ETFs like $VXX decay down long term, and in fact are down -99.9% since inception

However, it may be useful for traders to know what levels of Volatility correspond to the WORST VXX performance

Let's use the VIX index to divide the market into quintiles 0 - 20% range:

Low VIX seems to be one of the least damaging times to short Volatility.  I suspect that's because we only see these low Volatility levels when the market has been stable for a while, and perhaps more susceptible to a pullback

For Short $VXX performance, what levels on the VIX index give the best results?

- Low VIX for trend following?
- Mid VIX for reversion to the mean?
- High VIX for contrarians?

Let's divide the VIX into quintiles and short $VXX in those 5 ranges: Before showing short VXX performance, we have to divide the VIX up into 5 equal ranges  (quintiles)

Here are the breakpoints:

9.14  /  12.86  /  15.29  /  18.63  /  24.15

🧵  You'll often hear people say the average VIX Index value is 20

Is it though?  🤔

Now it's true the long-term MEAN is 19.58 2)  But MEAN can be deceiving because the outlier values can dramatically increase the average

Mean is just the average of a series of numbers

Add them all up, divide by the # of values

🧵 How much on average does the $VXX decay ?

VXX was the first Volatility ETP, launched on January 29th, 2009

In that time it has seen a spectacular decline, down 99.9%

It's an insurance product, of course it decays right?  But how much? VXX is not a stock and doesn't derive it's price based on supply and demand

Instead it uses a set methodology of rolling VIX futures and tracks an underlying index  (SPVIXSTR)

Loosely speaking, it's based on what we call the VX30:VIX roll yield

Black Monday 1987 🚨

A lot of people think the biggest Volatility spikes were the 2008 Financial Crisis  (89.53)  or the 2020 Pandemic  (85.47)

Not true my friends

The old VIX calculation VXO had a closing print of 150.19 on Oct 19, 1987 And that wasn't even the worst of it

The next day on October 20th, 1987 the VXO hit an intraday high of 172.79

So much for many people's theory that Volatility has some kind of ceiling...  It doesn't

Mini 🧵 on Drawdown Recovery

A good reminder for anyone who's forgotten just how PUNISHING large drawdowns can be on your forward investing progress

We'll use our favorite genius stock picker as an example, the $ARKK Innovation ETF

ARKK was down -81.57% at it's low

con't... 2) When a drawdown occurs, it's not a linear percentage move required to get back to the break even point

It's exponential

Simple example:  Investor makes 50% and then loses 50%, are they break even?  🤔

10,000  *  1.5   =  15,000   *  0.5  =  7,500

NO!  They're down 25%

🧵 How much on average does the $VXX decay ?

VXX was the first Volatility ETP, launched on January 29th, 2009

In that time it has seen a spectacular decline, down 99.9%

It's an insurance product, of course it decays right?  But how much? VXX is not a stock and doesn't derive it's price based on supply and demand

Instead it uses a set methodology of rolling VIX futures and tracks an underlying index  (SPVIXSTR)

Loosely speaking, it's based on what we call the VX30:VIX roll yield

🧵 I've recently deemed the $VXX once again safe for trading within our Volatility strategies

It was broken for months but there's good reason to believe it's fixed and behaving normally so green light

Retweet this thread to everyone you know that trades Volatility ETPs

con't 2) In the beginning there was $VXX

Launched back on January 29th, 2009 it's the longest running and arguably the most successful volatility ETP of the bunch with large AUM and robust options

It's the original gangster of the Vol Space

🧵 Someone emailed me: "Why is the VIX Index so high right now? When will it spike up?"

Our friend here is long $UVXY (poor guy)

The VIX Index is 19.63 today

Would it break your heart if I told you that's actually pretty HIGH, and it could easily go LOWER?

con't... Technically speaking, you could make a case the VIX Index at 19.63 today is just average

But what is average?

If we add up all VIX values since 1990 and divide by the 8345 days (this is called Mean)

The "average" or Mean VIX = 19.66

1) Got a weird one here, I'm going to need help from my multicultural Twitter following.

I'm back from my run (in Panama if it matters)
and as I'm leaving the elevator, there's a lady there that's very flustered. She doesn't speak English

continued... 2) She keeps gesturing to her room key, it's clear to me she can't get into her room. Ok, probably check with the front desk? I'm dripping in sweat and in workout clothes, clearly I don't work here.

She doesn't seem to care, she wants me to follow her

1) Today is now the 214th straight day of M1:M2 $VIX futures contango since VIX futures launched in 2004.

This is now the 2nd longest streak ever. How long will it last?

con't... 2) Contango is simply defined as the M2 VIX future trading higher than the M1 VIX future for the "Short Vol" traders out there:

Clip of the Day

You don't have to nickel and dime your option trades, get them done and move on. But with more complex spreads it is just "best practises" to spend an extra minute or two getting a decent fill price.

$VIX $VXX $UVXY #options 1) Make sure you're with a broker with a decent platform that allows you to see the bid ask and mid price with accuracy. Most will be plenty good enough these days, but having good data helps a lot for executions