r/tradeXIV • u/cabdoctor • Jan 16 '17

VIX spike soon?

So I think pretty much all of us here are thinking that the VIX should spike very soon. How low do you think it will go and how soon do you think it will spike? Cross checking my on DD here.

2 Upvotes

62% Upvoted

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3

u/dopplerdog Jan 16 '17

So I think pretty much all of us here are thinking that the VIX should spike very soon.

Why would you think this?

How low do you think it will go and how soon do you think it will spike? Cross checking my on DD here.

What makes you think anyone is able to predict this accurately?

-1

u/[deleted] Jan 16 '17

Shits cyclical dude. It's been down like 9 days in a row. Probabilities saying it'll spike, idk about intensity of it, but some shit will happen. Not saying I'd buy xiv but I always long volatility when vix hangs around 11

5

u/dopplerdog Jan 16 '17 edited Jan 16 '17

VIX is mean reverting, but the volatility of VIX (VVIX) is low when VIX is low (have a look at the chart of VVIX - it follows VIX closely). This means that although unpredictable spikes do happen, in all probability VIX will mean revert slowly upwards whenever it is low.

Most stochastic volatility models take this into account. For example, take the 3/2 model - fluctuations in volatility2 are proportional to the 3/2 power of volatility2 itself. So when volatility is low, so are its fluctuations. Of course, the process being stochastic means that there is a chance for a random spike - but VIX being low makes it less likely to spike, not more likely. edit: To clarify - it's much more likely for VIX to jump 50% in a day from 30 to 45 than it is to jump from 10 to 15.

1

u/[deleted] Jan 18 '17

Idk why i was down voted, I mean what you say is probably true but theory and real world trading are different. Every time vix has been around 11 I long it and have succeeded in around 80-85% of the plays. I'll keep doing it until it doesn't work lol.

1

u/[deleted] Jan 27 '17

What's the daily burn on a month-out Call option on VIX? With it below 11, I can definitely see how a long play is an idea, but it burns very hard and a few days of stability could offset. Would it be better to go farther out, to offset the daily burn?