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A Tiny Hedge Fund Made 8,600% on a Vix Bet

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Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#51

Post by JumpCrisscross »

dynamodispatch wrote: post #40
louprado wrote: post #21

The scariest WSJ headline the week prior to when volatility started was the following: "New account creation hits all time high at E-Trade, TD Ameritrade, etc". The stock market engine has been hot for 5 - 6 years now and we just threw a can of nitro into the engine by way of massive tax cuts and deregulation. And then pundits and our President brag about how awesome this ride is as if managed growth is somehow anti-…

> The scariest WSJ headline the week prior to when volatility started was the following: "New account creation hits all time high at E-Trade, TD Ameritrade, etc". The WSJ, marketwatch, cnbc, etc writes this every year. # of accounts, margin/debt exposure, etc. They also write how retail investors are missing out. "As Dow Tops 25000, Individual Investors Sit It Out" https://www.wsj.com/articles/as-dow-tops-25000-indiv…

> Retail investors don't move markets. Pension funds, hedge Funds, large investors do

I used to make equity derivative markets. About thirty minutes after CNBC commented on something, a tsunami of stupid Charles Schwab order flow would hit our systems. It moved prices. Coördinated uninformed flows can dramatically move markets because markets are priced at the margin, not the bulk.

TL; DR If both institutions and retail are active in a name, the institutions will set the terms. But if institutions are inactive while retail is active, the latter can move markers surprisingly far.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#52

Post by dynamodispatch »

ajeet_dhaliwal wrote: post #15
anonu wrote: post #12

In trading and the markets, you can beat the drums of war for as long as you want. At some point you will be vindicated. Then everyone will look back at you and think "genius!". Ultimately, timing is everything. I can tell you markets will be X in Y time. Within reason, there's a good chance it will happen. Question is just "when?" The problem with strong views is whether they can be maintained. Being short in a risi…

Do you write software? I don't get trading and I want to. I get programming. If you understand both that's great. I even took one masters course (as part of my bachelors degree) in financial mathematics about options, future, derivatives etc. but it didn't click at the time. I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambl…

There is a difference between trading and investing. Trading is short term gambling, investing isn't. You invest for the long term.

> Without insider knowledge I don't understand how I could beat the market short term.

Short term, you can't. You'll have to bank on luck. Hence why it is gambling. Especially if you go the options route. That's pure gambling as options are a zero sum game.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#53

Post by m3kw9 »

louprado wrote: post #21

The scariest WSJ headline the week prior to when volatility started was the following: "New account creation hits all time high at E-Trade, TD Ameritrade, etc". The stock market engine has been hot for 5 - 6 years now and we just threw a can of nitro into the engine by way of massive tax cuts and deregulation. And then pundits and our President brag about how awesome this ride is as if managed growth is somehow anti-…

Yeah people timing the corrrection is as foolish as people trying to time a bottom. The short game is won by people with way more information than you. You beat them by going long as it is harder to predict for them. The game is more even at that distance

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#54

Post by aphextron »

matt_wulfeck wrote: post #30
louprado wrote: post #21

The scariest WSJ headline the week prior to when volatility started was the following: "New account creation hits all time high at E-Trade, TD Ameritrade, etc". The stock market engine has been hot for 5 - 6 years now and we just threw a can of nitro into the engine by way of massive tax cuts and deregulation. And then pundits and our President brag about how awesome this ride is as if managed growth is somehow anti-…

> The retail investor masses heard that message and have arrived. The retail masses showed up many many years ago in the form of retirement accounts. And we’ve also benefited tremendously from this bull market. This last correction is nothing if you’ve been in the market for a few years. Also I really doubt retail investors are the catalyst for anything here. Normal people don’t move a trillion dollars out of the mar…

>Also I really doubt retail investors are the catalyst for anything here. Normal people don’t move a trillion dollars out of the market in a few minutes.

Sure they do. Robo-advisor services like Betterment have exploded over the past few years. They alone have over 10 billion under management right now. When everyone's money is following the same algorithms, it's natural to assume that any market movement will be magnified now.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#55

Post by dynamodispatch »

JumpCrisscross wrote: post #51
dynamodispatch wrote: post #40

Earlier quoted context omitted.

> The scariest WSJ headline the week prior to when volatility started was the following: "New account creation hits all time high at E-Trade, TD Ameritrade, etc". The WSJ, marketwatch, cnbc, etc writes this every year. # of accounts, margin/debt exposure, etc. They also write how retail investors are missing out. "As Dow Tops 25000, Individual Investors Sit It Out" https://www.wsj.com/articles/as-dow-tops-25000-indiv…

> Retail investors don't move markets. Pension funds, hedge Funds, large investors do I used to make equity derivative markets. About thirty minutes after CNBC commented on something, a tsunami of stupid Charles Schwab order flow would hit our systems. It moved prices. Coördinated uninformed flows can dramatically move markets because markets are priced at the margin, not the bulk. TL; DR If both institutions and ret…

> I used to make equity derivative markets.

By market, I was referring to the stock market. Also, are you claiming to be a market maker?

> About thirty minutes after CNBC said something about something, a tsunami of idiotic Charles Schwab and friends order flow would hit our systems. It absolutely moved prices.

It doesn't take 30 mins after the news breaks for stocks to move. And the move is usually orchestrated by the big boys and their algos. The herd can certainly follow the move of the big boys as they dump their shares on the late arriving retail investors. But the move is controlled by the big boys and of course the market makers as they tried to leech out as much off the spread as possible. Unless you are referring to lightly traded stocks or OTC stocks with no volume.

There isn't much retail trading derivatives. The derivative markets are almost exclusively dominated by hedge funds, banks, large investors.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#56

Post by spelunker »

erikig wrote: post #33
moomin wrote: post #4

An obvious question: how often did they place this bet before it came off? If they did it ten months in a row it would still be impressive. But the return wouldn’t be quite as good.

This is true, looking at the chart for XIV if the placed this bet every month for the last couple of years they may actually be down. https://finviz.com/quote.ashx?t=XIV&ty=c&ta=0&p=m

Article says a year.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#57

Post by amenghra »

ajeet_dhaliwal wrote: post #15
anonu wrote: post #12

In trading and the markets, you can beat the drums of war for as long as you want. At some point you will be vindicated. Then everyone will look back at you and think "genius!". Ultimately, timing is everything. I can tell you markets will be X in Y time. Within reason, there's a good chance it will happen. Question is just "when?" The problem with strong views is whether they can be maintained. Being short in a risi…

Do you write software? I don't get trading and I want to. I get programming. If you understand both that's great. I even took one masters course (as part of my bachelors degree) in financial mathematics about options, future, derivatives etc. but it didn't click at the time. I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambl…

If you keep your wealth as cash, it will get wiped out over time by inflation.

Now let’s imagine that you have enough money to buy 4 houses in a city/location you want to live in for the long term. I would say that’s pretty low risk because your cost of living is going to be roughly the same as what you can earn by renting out your 4 houses. I.e. you’ll be able to live off your rental income forever.

Therefore there are investment strategies that aren’t equivalent to gambling.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#58

Post by coliveira »

justaguyhere wrote: post #45
ajeet_dhaliwal wrote: post #15

Earlier quoted context omitted.

Do you write software? I don't get trading and I want to. I get programming. If you understand both that's great. I even took one masters course (as part of my bachelors degree) in financial mathematics about options, future, derivatives etc. but it didn't click at the time. I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambl…

I feel the same. I can understand programming, business etc - anything that involves creating something of value and exchanging it for something else of value with money as the medium. Two things that I never understand are - high end art market (a single painting is worth hundreds of millions of dollars, really?) and stocks. How is stocks not gambling? What exactly is being created here? It is just gambling and spec…

Nothing is being created. You're right, it is completely a gamble, unless you have some form of (not necessarily illegal) insider knowledge. But capitalists love the art of stock gambling because it gives the feeling that is related to something productive (a business). And they also perfected the art of extracting money from society (pension funds, retirements, sovereign funds) to fuel these stock-trading activities. So it is very lucrative for a small group, a little over inflation for many people, and a big loss for a lot of less fortunate investors. It also help concentrate business in the hand of a few, because if you have lots of money you can buy the advice of the best money managers and let the small investors bear the losses.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#59

Post by pjc50 »

justaguyhere wrote: post #45
ajeet_dhaliwal wrote: post #15

Earlier quoted context omitted.

Do you write software? I don't get trading and I want to. I get programming. If you understand both that's great. I even took one masters course (as part of my bachelors degree) in financial mathematics about options, future, derivatives etc. but it didn't click at the time. I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambl…

I feel the same. I can understand programming, business etc - anything that involves creating something of value and exchanging it for something else of value with money as the medium. Two things that I never understand are - high end art market (a single painting is worth hundreds of millions of dollars, really?) and stocks. How is stocks not gambling? What exactly is being created here? It is just gambling and spec…

Stocks are an entitlement to a future income stream, created by a the real business of the company being invested in. It's just that there's a lot of levels of indirection.

Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet

#60

Post by defo_nonconvex »

hyencomper wrote: post #39
ajeet_dhaliwal wrote: post #15

Earlier quoted context omitted.

Do you write software? I don't get trading and I want to. I get programming. If you understand both that's great. I even took one masters course (as part of my bachelors degree) in financial mathematics about options, future, derivatives etc. but it didn't click at the time. I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambl…

Benjamin Graham's The Intelligent Investor elucidates the principles of value investing as opposed to risky gambling. This is a book recommended by Warren Buffett too.

I tried to get through this, but after one or two chapters it seemed really dry, and somewhat outdated for current markets. I've read dry material on financial markets before, but jeez. Did you actually learn much from it? If anyone wants to post a tl;dr summary, it would be appreciated.
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