Coming from gas vol I would be very reluctant to be short puts in equity markets right now. Actually in my PA I have 50% in a market maker. Hoping for a massive correction in the next years. Of course as a trader you need to make money every year (versus a PA where you can have a longer time horizon).
Maybe I'm not understanding what the y axis means in the chart or liquid ETFs. Or... I just don't understand why all the dot would be concentrated towards the upper left. Can anyone explain?
Dealers are long VIX futures (net), so could they being "risk arbitraging" selling single stock vol and making a portfolio and long, elevated stock index vol? This seems to make sense to me. If dealers can create a portfolio of options similar to the SPX, out of single stock options, then they can lock in a profit by delta hedging and being long VIX futures. Even if dealers loose on the VIX futures hedge, if they have sold a portfolio of options with a much higher "VIX" then they make $$$
Thanks for your comment. But I am still curious as to why dealers have the largest net long position, since 2020 as % of Open Interest, in VIX futures. Hedge funds have a large short position too. I would think the dealers would be trying to keep a near neutral Vega book while still leaving a profit margin....
I need to learn more about that. It's not my experience that the sharps are long VIX futures so I need to learn more about the classifications. In general anyone on the arb side tends to be short SPX vega so for them to be long VIX futures likely has to do with seeing one side of a boxed position
I use "mm" for money managers, i.e. hedge funds & CTA's but the CFTC calls them 'leveraged funds'. I use that "non-reportable" as the small traders and the CFTC document does not explain that category, which is everyone left over and usually the sucker at the poker table (at least in looking at all assets) ....
Really enjoyed this one - thanks Kris!
Interesting read.
Coming from gas vol I would be very reluctant to be short puts in equity markets right now. Actually in my PA I have 50% in a market maker. Hoping for a massive correction in the next years. Of course as a trader you need to make money every year (versus a PA where you can have a longer time horizon).
Maybe I'm not understanding what the y axis means in the chart or liquid ETFs. Or... I just don't understand why all the dot would be concentrated towards the upper left. Can anyone explain?
When vols are low term structures are ascending so steepness is high (market bakes in mean reversion of vol)
Dealers are long VIX futures (net), so could they being "risk arbitraging" selling single stock vol and making a portfolio and long, elevated stock index vol? This seems to make sense to me. If dealers can create a portfolio of options similar to the SPX, out of single stock options, then they can lock in a profit by delta hedging and being long VIX futures. Even if dealers loose on the VIX futures hedge, if they have sold a portfolio of options with a much higher "VIX" then they make $$$
That's a long correlation trade and not what I'd expect. I don't think owning downside index vol is the layoff leg.
If they are going to be long core it's likely in the topside skew and near dated
Thanks for your comment. But I am still curious as to why dealers have the largest net long position, since 2020 as % of Open Interest, in VIX futures. Hedge funds have a large short position too. I would think the dealers would be trying to keep a near neutral Vega book while still leaving a profit margin....
Here is a link to a Chart I made from the CFTC data, which is about 2 weeks old because of the US Gov. shutdown https://substack.com/profile/82572547-chris/note/c-164006124?utm_source=substack&utm_content=first-note-modal
I need to learn more about that. It's not my experience that the sharps are long VIX futures so I need to learn more about the classifications. In general anyone on the arb side tends to be short SPX vega so for them to be long VIX futures likely has to do with seeing one side of a boxed position
Here is the CFTC's explanation: https://www.cftc.gov/sites/default/files/idc/groups/public/@commitmentsoftraders/documents/file/tfmexplanatorynotes.pdf
I use "mm" for money managers, i.e. hedge funds & CTA's but the CFTC calls them 'leveraged funds'. I use that "non-reportable" as the small traders and the CFTC document does not explain that category, which is everyone left over and usually the sucker at the poker table (at least in looking at all assets) ....