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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

#61

Post by tbrock »

I used to trade volatility and conventional wisdom is definitely not that the Vix is always quiet.

The phrase I always heard and said is “we are picking up nickels in front of a steamroller” in reference to shorting implied Vol. Everyone knows this is bound to happen.

Although, the trick is that over a long enough time horizon implied volatility is higher than realized. People are unnaturally scared of movement in the market.

There are books published and read by almost all traders about this very event by Nick Taleb.

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

#62

Post by RockyMcNuts »

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…

Play poker once a week for small, but real money. Study the game (read Sklansky, Harrington, do the MIT poker school).

After a year, you get used to the idea of a bet where you'll win some, lose some, but know on average you'll do better than OK.

Investing is gambling, but with an edge, since it's not a zero-sum game. Also you have to be patient, you are almost certainly not going to consistently beat the market short term, but you should do better long term than not investing.

If that's not for you, then just buy target date funds, balanced funds, structure your own balanced ETF portfolio, or pay a robo-advisor or human advisor to invest for you.

TFA's type of trade is like advantage gamblers who read the fine print of casino promotions looking for situations where they have an edge. Whoever sold that (presumably) OTC exotic bullet option (probably) didn't realize leveraged short vol funds forced to cover could create a vol-pocalypse. http://kiddynamitesworld.com/xiv-volpocalypse-sea-disinforma...

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

#63

Post by morgante »

Retric wrote: post #49
auxym wrote: post #37

Earlier quoted context omitted.

> ... I cannot stop my brain thinking it's gambling. Without insider knowledge I don't understand how I could beat the market short term. That's a smart conclusion that's correct in the vast majority of cases. Day trading, especially as a retail investor, is mostly gambling. If you have funds to invest medium-to-long term, index investing using low cost, well-diversified funds really is the best thing you can do. Is…

Liquidity has value. Keeping say 10-20k in a checking account seems really dumb, but if that let's you avoid bank over draft fees and credit card interest that savings can easily keep up with inflation.

If you just invest that money in a good brokerage, you should easily be able to take it out as a margin loan when necessary.

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

#64

Post by JumpCrisscross »

dynamodispatch wrote: post #55
JumpCrisscross wrote: post #51

Earlier quoted context omitted.

> 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 t…

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

I used to be a market maker of stock options, amongst other things.

> It doesn't take 30 mins after the news breaks for stocks to move

When it comes to markets, test every assumption. In reality, information diffusion is unpredictable and heterogenous [1]. This is due to, in part, the "effects of limited attention in at least part of the population of investors in the market, interacting with some more sophisticated investors with better access to information processing technologies" [2].

> The derivative markets are almost exclusively dominated by hedge funds, banks, large investors

Individual stock (versus index) options are actively traded by individual investors [3]. Individual investors also actively trade futures [4].

[1] http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.652...

[2] https://pdfs.semanticscholar.org/b180/3e674cc6be4de275cda1aa...

[3] https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2013.184...

[4] https://www.sciencedirect.com/science/article/pii/S156601411...

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

#65

Post by OscarCunningham »

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…

A lot of traders are just gambling, but there is also something of value being created.

Stocks are risky. People don't like risk. So the current price of a stock will always be less than its expected future value. Therefore the value of the stock will tend to go up.

So when you own a stock you're being paid for bearing the risk. This is a real service of value that you're providing for the world.

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

#66

Post by walshemj »

pedrocr wrote: post #43
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…

But do you want to invest or do you want to trade? If what you want is to invest your objective should be to get the average of the market as cheaply as possible not beat it. Here are two articles to help you with that: For the rational part: https://web.stanford.edu/~wfsharpe/art/active/active.htm For the emotional part: http://awealthofcommonsense.com/2014/02/worlds-worst-market-... And if you need a good source fo…

For part of your portfolio yes but once you have a decent amount (when say your normal size of order is £2k) you want to start diversifying and playing on special sits and corporate actions.

An example from the UK electra private equity ELTA was on a massive discount activist investors came in and I made over twice my initial investment in two month - I would have busted my yearly allowance for dividend income just on that stock alone.

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

#67

Post by walshemj »

defo_nonconvex wrote: post #60
hyencomper wrote: post #39

Earlier quoted context omitted.

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.

It's written in simple language (and modern editions come with commentary updating it ) if you cant read that book then maybe you should not invest in shares at all.

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

#68

Post by alva »

dynamodispatch wrote: post #35

This isn't news. It happens all the time. During earnings season, whenever there is a news break about pharma,tech,commodity, etc, whenever there is a big political/environment/etc news, and when the market moves. And 8600% isn't that impressive ( depending on the size of the bet ). Leveraged bets can turn $1K into $1M or $10M overnight. If you want impressive, go look into the returns in currency trading when the sw…

Sounds like they were not leveraged. Any idiot can make super high leveraged bets that will wipe them out if they don't pay off. Your comment suggests a lack of understanding of risk. Max risk of 200k for 17m payoff is VERY impressive.

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

#69

Post by walshemj »

dynamodispatch wrote: post #52
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…

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.

Possibly not options - you can identify potential value /arbitrage situations - higher risk than pure value to be Shure.

Binary bets absolutely are gambling, as I was told when I went to an interview with a big London spread betting company

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

#70

Post by dominotw »

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-…

How do you define " managed growth" ?
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