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| bio | website | quanttrader.info/public |
|---|---|---|
| location | Elgin, IL | |
| age | ||
| visits | member for | 2 years, 4 months |
| seen | 6 hours ago | |
| stats | profile views | 258 |
Quantitative developer, writer, instructor, private trader, so-so musician
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Feb 3 |
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Trading a synthetic replication of the VIX index @shane Nice work! Thank you for such a detailed reply. I've seen the VIX Fix before, and I like it for markets where no one publishes the daily implied volatilties. The problem here is that I cannot trade the VIX Fix either, just like I cannot (directly) trade the VIX itself. I'm looking for a tradable synthetic, leading to opportunities for spreads and out-right positions. |
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Feb 3 |
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Trading a synthetic replication of the VIX index @richardh According to my calculations, VXX has an 80% correlation with the spot VIX index... and their returns are only 44% correlated. I suppose VXX would be better than nothing, but I am exploring the alternatives and looking for a smaller tracking error. |
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Feb 3 |
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Trading a synthetic replication of the VIX index @barrycarter My goal here is to replicate the spot index. The futures track the forward VIX. The synthetic futures (VIX options) track the futures and, hence, the forward VIX, so they won't replicate the spot, either. The spot index is much more volatile, so my hope in replicating the spot is to create new, profitable opportunities in trading and arb'ing. |
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Feb 3 |
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Hedging stocks with VIX futures @barrycarter Thanks for your comment. I'm accepting this as the answer because this dialog woke me up: there is no quick answer to my question. I'll need to dig in, explore the relationship between my portfolio and the VIX futures, build a model, and construct the hedge. Time to roll up my sleeves. |
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Feb 3 |
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Hedging stocks with VIX futures @Jura25 No worries. It's no crime to remind me there is a simple solution to my problem! Thanks. |
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Feb 3 |
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Is there any theoretical basis for pattern-recognition strategies? When you say "pattern recognition", are you asking about traditional technical analysis, or are you asking about statistical pattern recognition techniques such as CART, recursive partitioning, kernel regression, support vector machines (SVMs), etc? |
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Feb 3 |
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Why does the VIX index have *any* correlation to the market? @barrycarter Really? Are dividends (and reinvestment) included in the S&P500 calculation? I thought Standard and Poors just calculated an average price weighted by market capitalization. Did something change? |
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Feb 3 |
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How does pair trading work? I'm not certain that all quantitative trading of pairs involves cointegration. There can be other, quantitative reasons to trade a pair. For instance, I trade the crack spread: the 3-way spread between crude oil, gasoline, and heating oil futures. Those spreads get out of whack, creating trading opportunities, and we can fully quantify the relationship. But the futures are not cointegrated. |
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Feb 3 |
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Who has introduced the term 'vega' and why? @barrycarter Good point, Barry. I don't know if it's an appropriate question, but it sure was fun digging through my dusty old option pricing books, looking for a clue. |
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Feb 2 |
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Hedging stocks with VIX futures @jura25 Thanks for the reminder. I'm looking for alternatives to hedging via option purchases; paying those premia ticks me off. Hedging via option sales is a lot of work. I thought the VIX futures might present an efficient alternative. |
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Feb 2 |
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Hedging stocks with VIX futures @Lao-Tzu Thanks. That's a useful observation regarding kurtosis. As for VIX ETFs, I am (very) unlikely to hedge using them: too flaky since I can't control the roll-forward process. I'm likely to stick with the VIX futures... although I'm tempted to experiment also with the synthetic spot (long straddle, adjusted to be delta-neutral through SP500 purchase/sale). |
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Feb 2 |
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Hedging stocks with VIX futures @barrycarter @jura25 I think the situation with VIX and stock indexes is more nuanced than people realize. For example, the VIX futures and IWM (the Russell 2000 ETF) are cointegrated according to my R code (ADF p-value < 0.01, using 2 most-recent years of closing prices, hedge ratio 1:1800). If that's true, then the VIX could be an effective hedge for the R2K. My problem is that my portfolio is not perfectly correlated with the R2K, and its size changes over time. It seems the hedge is ripe with possibilities, but I'm not sure how to make the hedge work. |
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Feb 2 |
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Hedging stocks with VIX futures @barrycarter: Thanks, good point. I should have said they "often rise when stocks fall." I'm not looking for a perfect hedge, just a reasonable one. |
