Post 2/5 thoughts and metaphors

With almost a month of normal VIX action, I think I'm just about past all the 2/5 chest pain and mega blood pressure,  all the really bad SVXY spreads got assigned/exercised, now its just like 3rd person looking at an event historically, resuming full 'namaste' mode.

The main vindication is that from the UVXY/ VXX spreads with enough duration, those will probably be fine with some rolls, so the idea of shorting VIX even at the lows in the right product with enough duration is fine!  This really was an XIV issue, not a true short VIX issue, even if that sounds odd.  The whole thing felt like a forex stop hunt, which is why as short premium people we don't even have the inkling to feel the forex jumps.  The issue here is that it was like a stop hunt on an entire product.

One of the blogging issues in the aftermath is that there just isn't much to say now- there was a big hit and now we just gotta grind back up.  (Sorry if I've been a little quite but I'd rather not spam the same thing over and over).  I got some great prices on short VXX put spreads just after the spike to flatten deltas on the slow VIX grind back down, but even a week later that insane premium came in by a lot so going forward there will be way less decay on the "long" VIX side.  Either way I think going forward I'll be leaning toward the 'soft cap' short VIX iron condor with the VXX short put spreads as the slight yield boosting hedge as opposed to another asset class like bond or metals strangles.

On the emotional side of trading I just don't think I should be 'hedging'/ boosting yield with other asset classes because I get a tranquility from VIX, we understand it as an asset class and a human concept, and the same can't be said for bonds/commodities.    

Given the whole SVXY blowup (why couldn't I be all VXX/UVXY short call spreads), I've just been thinking of it as the car crash metaphor, the kind of hit we signed up for, and that makes us a better trader in the future and a more complete human being.
In high school, one of the earliest kids to get a driver's license and car was a bit reckless and did get in some accidents, but one thing he just said jokingly stuck with me-
I think someone was discussing that some parent wouldn't want him picking up their daughter or something in his car since he had an accident, but his retort was "no dude you definitely want a driver who has been in a bunch of big crashes, they are much safer"
(you have to picture it with a boisterous sarcasm. He had a huge trunk subwoofer in his 4runner in ~10th grade and was an all around character)

I've been thinking about this lately and in the scope of all kinds of risk, and it is a bit of a joke but I think some kinds of risk you really need to experience, or else no amount of info on paper will make it real.  Even if I had all my positions in UVXY and didn't take such a hit then in the future I still might  not have the clarity I got from this experience.


Takeaways:

• Short VIX works! XIV didn't

• Grinding it back up this year with soft cap iron condors on VXX/UVXY

• Just hedging with the short premium on the 'long VIX' side of the condor (I think I'm over metals/bonds), also can potentially use some of that premium on additional OTM long VXX calls to flatten out spikes slightly.  (This is mostly about the psychology of the strategy and short VIX, bond yield uncertainty is scarier to me than VIX spikes)

• Life is suffering, but this is what we sign up for, otherwise why even wake up if you are just going 100% SPY

 

How many layers deep are we?

With the market closed for good Friday I'm getting a little stir crazy, I NEED A GREEN TICK!  Here's a quick aside I contemplate when thinking about derivatives and how many layers we have, where we've come from and how much deeper we could go.
I also mention this when explaining the journey from stocks (which most people understand) to how we get to SVXY options. 

So here is the dive to the Challenger deep:

S&P Stocks- this is where we start, where everyone understands. Apple, Microsoft, etc.
S&P Options- the first layer of derivatives, based on the above stocks.
Spot VIX- the actual VIX index, based on the Black-Scholes calculation of 30 day S&P options (above)
VIX  Options- we can't trade the spot VIX, its just a number, so VIX options allow bets on the index and are cash settled.
VIX Futures-  the futures /VX and further out are based on the VIX options at the money price at the corresponding expiration.
VIX ETFs- These are trade-able products that act like stock, based on combinations of VIX futures, constantly being rebalanced between the first 2 months or further out depending on the product.  Here we have VXX, XIV, UVXY, SVXY, TVIX and more.
SVXY Options-  Of the VIX ETFs, just UVXY and SVXY have options so far, thus that is the main product I use, allowing access to time decay and varied leverage on short/long volatility.  At this point we are on the 7th layer down of derivatives, sunlight does not penetrate this far down.

How much deeper can we go? Obviously increased volume/liquidity would lead to options on all the ETFs, as well as new ETFs (VMIN, VMAX are slightly "more accurate" versions of VXX, XIV).

While I do revel in how arbitrary all of this is, I do have to remember that even at 7 layers down in derivatives, these all eventually lead back to S&P stocks, so I guess we still are in reality.  Thanks for joining me on the dive!