The other side of the bet just went bust.
Credit Suisse Fund Liquidated, ETFs Halted as Short-Vol Bets Die
https://www.bloomberg.com/news/articles/2018-02-06/credit-su...
A Tiny Hedge Fund Made 8,600% on a Vix Bet
11–20 of 122 posts
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#12In 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 rising market or long in a falling one can be painful. Markets have a way of wiping out your position (margin calls, psychological biases to losing money and exiting) longer than you can hold on.
In these guys' case, timing was even more important- because of options maturity dates. The article seems to allude to the fact that they rolled their position forward multiple times: "For about a year, Ibex had been buying options on the ProShares Short VIX Short-Term Futures ETF, ticker SVXY."
So the real question is how much money did they blow on premiums before the final trade did well?
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#13Earlier quoted context omitted.
The questions typically are (1) Can you find an instrument that lets you bet on the mispricing (2) do you have the wherewithal to stay solvent for the arbitrary period of time it takes for the market to correct. Individual investors typically cannot access the right instruments (typically weirdly structured long term options). Typical institutional money managers cannot because their measurement typically penalizes c…
Why can't individual investors access them?
Sometimes brokerages prevent retail clients like in this story below,
https://www.marketwatch.com/story/fidelity-prevents-retail-c...
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#14The probabilities of black swan events are often grossly mispriced by the markets. Looks like it paid off big time.
I'm not sure that's true. Andrew Gelman once mentioned that Black Swan events are actually routinely _overpriced_ via the Longshot Bias. [1] He had talked about this in the context of the recent Leicester FC win and the odds on that team. [2] [1] https://en.wikipedia.org/wiki/Favourite-longshot_bias [2] http://andrewgelman.com/2016/06/02/30183/
Glass half full/Glass half empy. A bet against the opposite of an overpriced event will be underpriced.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#15In 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 gambling. Without insider knowledge I don't understand how I could beat the market short term. In terms of long term investing in an index fund or ETF, that supposedly is more sensible but that sort of feels like gambling too, in a way everything is I suppose, buying a house is too, but I suppose you have to just get your brain to get over it. There's no guarantee of anything.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#16The other side of the bet just went bust. Credit Suisse Fund Liquidated, ETFs Halted as Short-Vol Bets Die https://www.bloomberg.com/news/articles/2018-02-06/credit-su...
The XIV security, which had fallen roughly 85 percent in after-hours Monday, closed down 93 percent Tuesday.
(and you think Cryptocurrencies are volatile)
https://www.cnbc.com/2018/02/06/the-obscure-volatility-secur...
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#17Earlier quoted context omitted.
Why can't individual investors access them?
You have to find a broker that will sell them to you. Usually these things aren't vanilla options, they're some sort of quasi-option derivative.
> Usually these things aren't vanilla options, they're some sort of quasi-option derivative.
Options are derivatives.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#18In 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…
I was introduced to the book "Trading and Exchanges: Market Microstructure for Practitioners" on HN[0] and it seems like a really good book (from the bit I have skimmed so far).
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#19In 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…
The article quotes "for about a year" and the bet of 200K USD on Jan 2, profiting Feb 6 with 17.5M USD, which I understand as: if they had to do it every two months, they had to invest 1.2M USD in one year before they won 17.5M. Still not bad. Of course, the options they get wouldn't have to give them the same win every time they invest 200K though.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#20I hadn't heard of the volatility index (VIX) until I read a short article about it in the last issue of the London Review of Books. Might be worth looking at of you want a little bit of background on this story: https://www.lrb.co.uk/v40/n02/donald-mackenzie/short-cuts
Great article, love his writing style as well.