Quick Note on Vol

Being short vol has been no fun this year. Everyone wants to know how bad it will get. XIV has a short history but here’s the draw downs:

Edited 021114

Edited 021114 – Incorrect cell in SpreadSheet

Just eye-balling, the 2011 draw down took about 8 months or so to revert back to 52 week highs, with the next being about 4 months in summer of 2012. It looks to take about 2 months to reach it’s zenith or so before beginning to revert. Both of these were macro-events, Euro Crisis. This one I’ve come to call the #JustinBieberTop on twitter out of jest because there isn’t a great reason for it other then de-leveraging. It started in FX carry and moved on to other areas as bets are all highly correlated these days (too much money and not enough capacity) So ask yourself if this is another Euro banking crisis or something else but hedge just in case 🙂

I had to look up the initial 30% Draw Down in Feb/March of 2011. VIX spiked from 16 to 31 on concerns over Libya and crude oil!

http://money.cnn.com/2011/02/22/markets/markets_newyork/

http://money.cnn.com/2011/02/23/markets/markets_newyork/

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~ by largecaptrader on February 5, 2014.

One Response to “Quick Note on Vol”

  1. Thanks – Agree that short vol has been tough to trade in 2014. VIX Futures have been in backwardation for over a week now – something we haven’t seen since August 2011.

    btw Hypothetical VXX / XIV time series going back to 2004 have been constructed from VIX Futures data by a few bloggers. One such example is here: http://investing.kuchita.com/2012/06/28/xiv-data-and-pricing-model-since-vix-futures-available-2004/

    The drawdowns are worse using this longer history. The max DD was 93% for long XIV, and 478% for short VXX.

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