VIX at the daily view.
I know it's been a while since I last posted. I've been absolutely swamped at work with 12-14 hour days, but I'm finally seeing the light at the end of this tunnel.
The VIX is back to its general downward channel. From the looks of it, volatility will be limited for a while. When it comes to volatility vs liquidity, liquidity usually wins. The green dashed line is the line between the March 2020 crash and pre-COVID crash. Once the VIX closes under it, I won't be expecting a lot of volatility in the future... I think it's apparent by now.
I've been seeing a lot of permabears who think they can get rich quick by longing VIX. The issue is that it's not the VIX being traded. It's the VX Futures. A lot of them do not understand how the VIX works or why it rises. Traders who refuse to learn the mechanics behind the market likely have ego issues. It derives from the fear of being wrong.
Here is why I rarely go long on VX products including UVXY and VXX. Every month, the VX usually trades at a premium and act as a hedge to large speculators. VX is the derivative which you trade off of. VIX is the actual underlying asset. That premium is called backwardation. By the second week of every month, that same premium decays over time. So even if the actual VIX rises, the VX is still decaying that premium. This causes the new lows for VX ETFs every month. By the third week of the month, the VIX contract rolls over and the premium is back on. The most optimal strategy is if the VIX makes a large spike in the first week of the month, then it's best to short that VIX spike and collect the premium decay during the second week of the month.
That monthly premium decay is the cause of many, many UVXY/VXX bagholders. Trading the VIX requires a lot of patience. Patience is something most people do not have. I am willing to wait months at a time to short a big VIX spike. In the words of Warren Buffett, "the stock market is a device which transfers money from the impatient to the patient.” The VIX is no exception.
I know it's been a while since I last posted. I've been absolutely swamped at work with 12-14 hour days, but I'm finally seeing the light at the end of this tunnel.
The VIX is back to its general downward channel. From the looks of it, volatility will be limited for a while. When it comes to volatility vs liquidity, liquidity usually wins. The green dashed line is the line between the March 2020 crash and pre-COVID crash. Once the VIX closes under it, I won't be expecting a lot of volatility in the future... I think it's apparent by now.
I've been seeing a lot of permabears who think they can get rich quick by longing VIX. The issue is that it's not the VIX being traded. It's the VX Futures. A lot of them do not understand how the VIX works or why it rises. Traders who refuse to learn the mechanics behind the market likely have ego issues. It derives from the fear of being wrong.
Here is why I rarely go long on VX products including UVXY and VXX. Every month, the VX usually trades at a premium and act as a hedge to large speculators. VX is the derivative which you trade off of. VIX is the actual underlying asset. That premium is called backwardation. By the second week of every month, that same premium decays over time. So even if the actual VIX rises, the VX is still decaying that premium. This causes the new lows for VX ETFs every month. By the third week of the month, the VIX contract rolls over and the premium is back on. The most optimal strategy is if the VIX makes a large spike in the first week of the month, then it's best to short that VIX spike and collect the premium decay during the second week of the month.
That monthly premium decay is the cause of many, many UVXY/VXX bagholders. Trading the VIX requires a lot of patience. Patience is something most people do not have. I am willing to wait months at a time to short a big VIX spike. In the words of Warren Buffett, "the stock market is a device which transfers money from the impatient to the patient.” The VIX is no exception.