Use access key #2 to skip to page content.

IBDvalueinvestin (99.68)

Easiest way to get rich? Short VXX

Recs

9

May 07, 2013 – Comments (39) | RELATED TICKERS: VXX , VXZ , UVXY

when the market is just bouncing off the bottom like it was in March 2009.

VXX has gone from $1855/shr in 2009 to a measly $18/shr today.

But in real terms it never was $1855/shr, that price is what the share price would have been if you take into account all the reverse stock splits its had since then. But either way if you shorted and kept shorting since 2009, you would have made the easiest money that could be had on wall street outside of insider trading of course. 

39 Comments – Post Your Own

#1) On May 07, 2013 at 10:25 PM, IBDvalueinvestin (99.68) wrote:

Chart of VXX

 Monster Decline - Looks like a ski slope from Mt. Everest

Report this comment
#2) On May 07, 2013 at 11:38 PM, Valyooo (99.35) wrote:

I dont understand why anybody would not do this...I short vxx all the time and love it

Report this comment
#3) On May 08, 2013 at 10:10 AM, drgroup (69.48) wrote:

What's the catch? What would bring about a reversal in this easy money?

Report this comment
#4) On May 08, 2013 at 10:47 AM, Frankydontfailme (27.20) wrote:

It will never go up!

Report this comment
#5) On May 08, 2013 at 1:15 PM, CCharing (89.11) wrote:

No, its actually a horrible risk/reward trade off.

It's one of those 'picking up pennies in front of a steam roller' trades.  It's like a retail version of niederhoffer or LTCM.  A lot of people think LTCM blew up because of their convergence bets - this is a bit of a simplification - the fixed income convergence would have cause a massive drawdown, but most of the levered positions at the time of LTCM's failure were the result of an esoteric bet against longrun S&P volatility.

If you must short the vix, then it would be easier to "short teenies."  What is "shorting a teenie?"  Shorting way out of the money puts on very safe companies or indexes.  The mechanics are the same (high IV/volatility affects the option price via black/scholes, so its like shorting the vix).

Anytime you short volatility you are basically making money off the "mispricing" or low probability outcomes.  But this is a dangerous assumption because markets (while they exhibit many characteristics of adhering to a gaussian distribution) are probably not.  And even if they resemble a bell curve, you are completely discounting the occurence of fat tails. 1987 was a 30+ sigma event.   So if your null hypothesis is that market obey some kind of normal distribution, 1987 would basically indicate (with a confidence interval approaching 100) that your null hypothesis is wrong.  If you review portefeuilles 'fund trades' this is partly the reason why he sometimes bought way out of the money puts into the close - to hedge tail risk.

But lets dispense with the theory and approach this from a practical stand point: how would you short the vix - i.e. everytime it goes over some kind of longrun median value you short it?  With how much of your capital?  It is escalating in nature so you could easily blow up anytime you short it in a 'worthwhile' capacity (enough to actually move the needle on your returns).   So the best you could do is occasionally short it with a small percent of you're available capital and hope for a nice quick down pop.  

Shorting it at the high in 2009 is useless cause if you can time the top of the vixx you could basically deduce that the market was at the bottom.  Randomly companies would have generated many times the return of shorting the vix (over the course of a couple of years you get a return approaching 99.9% instead of a compounding asset).

---

This type of theta trade always loses in the long run.  There are people who "get lucky" of course.  TOS profiled a woman who basically shorted options that have an IV that implies less than 5% of being in the money at expiry.  The lady basically maxed out her available margin 56 days out from each option expiry in such a manner.  She made tens of millions and is still going strong.  She started in 2009 (go figure) so she was spared most of the 3+sigma craziness of the subprime crisis.  I would love to ask her how she survived the flash crash (maybe she got lucky and was rolling positions and was therefore not in the market).

The point is, the better way to put on this trade is to short "impossible" puts 1-2 months out where the time decay/volatility decay works in sync.  But even then mathematically you are guaranteed to eventually take a large hit. 

The hedge fund I work out occasionally seeds capital to new start up funds. The first thing our PM looks at is if the returns correlate to decreasing volatility. Trust me, this strategy is very well known (LTCM, niederhoff) and no one wants exposure to decreasing vol(steady return) high vol(large drawdown). You might as well just day trade levered etfs...

Report this comment
#6) On May 08, 2013 at 1:23 PM, CCharing (89.11) wrote:

To paraphrase Taleb: You'll eat like a chicken but sh*t like an elephant.

The only known institutional investor that has had anything resembling success with a "short vol" strategy is:

http://autumngold.com/novus/cta_profile.php?id=113913

if you short the vix, you're only recourse is really to hold if it moves against you - with puts you can martingale away by rolling down. Not much consellation but I think it's better than risking being bought in forcibly.

Report this comment
#7) On May 08, 2013 at 1:29 PM, CCharing (89.11) wrote:

The theory behind the vix and volatility in finance is actually quite fascinating.  It is almost impossible for the vix to maintain above a certain level for an extended period of time because it implies a certain expectation of variance. And markets (atleast according to more theories) drift towards equilbrium, which means they should move towards decreased volatility in the longrun.

Report this comment
#8) On May 08, 2013 at 1:50 PM, Imperial1964 (97.77) wrote:

Minsky: stability breeds instability.

Report this comment
#9) On May 08, 2013 at 4:40 PM, drgroup (69.48) wrote:

After reading all this I'm sure I don't know understand a danm bit of it. Time to actually read more on this....

Report this comment
#10) On May 08, 2013 at 11:40 PM, Valyooo (99.35) wrote:

CCharing,

 

I disagree with you for a few reasons

 

1) Volatility premiums on VXX are pretty good...so you can short the VXX and constantly sell puts against it...there are puts that expire in 6 weeks that are 6.5% OTM, selling for a 4% of price premium...you can be wrong by 4% in 6 weeks, and still be right

 

2) VIX contango seems permanently outrageous, as the future roll puts VXX doing 3-4x worse than VIX during times when VIX goes down, but only 1-2x as good as VIX when VIX goes up

 

3) VIX spikes tend to be short lived...so just wait for a day when it spikes big time, and just load up on the short, and sell puts on it for mega premium due to high vix...obivously dont mortgage the house on it ...I don't see how this can lose with a hedge + negative roll yield + directional betting being pretty obvious at those points 

 4) I fail to see how a subjective definiton of a safe company is superior to a subjective definition of a high probability vix trade....big companies can and do go out of business all the time...also, I think AAPL was probably as "safe" as you could get, before it fell 40%

 

It seems that although you clearly know a lot on the mathematical finance side, most of your comments seem to imply that the market is efficient and anythhing that is a directional bet is merely a gamble...which makes me wonder, why you think you can outperform the market, while at the same time thinking it is impossible for others to do so even on a theoretical level? 

Report this comment
#11) On May 09, 2013 at 1:18 PM, CCharing (89.11) wrote:

I meant that if one were to undertake such a strategy they should write puts based on THEIR subjective evaluation of risk/margin of safety. It is "safer" than their subjective valuation of "vix is about to mean revert." Which is why I asked, how much capital is allocated to a short (and at what level is the vix when you decide [mechanically or subjectively?] that the vix is about to decay?) It is very easy to wipe out your account when you "load up." When it spikes, it spikes REALLY hard. And if you catch say a large spike, and then you have a flash crash-like situation you're basically done. If you plot 1987's crash on a normal distribution based on existing market returns you get a nonsensical outlier. Just off the top of my head a 10 sigma event has approximately once in a million years. I think you understand the math enough to know that 20 'more' sigma is exponential not additive or multiplicative. Most people even remove black monday from quant calculations.

http://en.wikipedia.org/wiki/File:VIX.png

I think realstically to make this short more than once a decade you would be shorting anytime it gets to the 30-40 range? What happens if it hits 150? 200?

I think observing margin of safety is more inuitive than observing "abnormal volatility."

---

I think we've touched on this before. I don't believe in efficent market academia, nor am I a principle at the fund where I am employed. I told you previously that my fund only invests in relative value situations (i.e. various debt/equity type special situations and arbitrage).

I can't give you a specific trade, but the strategies are meant to placate institutional investors who do believe EMH. If you ever work at a fund that has to raise money from institutions you'll quickly learn how to express your strategy in a way that doesn't violate EHM whether you believe it or not.

I can provide a retail-level example. Right before the GM bankruptcy and after ruling that the common would be worthless (i.e. exisiting essentially shareholders were wiped out, shares canceled) you could short the lowest value denomination GM call option for essentially a 100% gain:

1.) share cancellation imminent (even a date was set)

2.) due to the level of dilution/number of outstanding shares if the call option came into the money it would imply that the standing valuation of GM would be the 5th most value company (right in front of berkshire)

That is essentially a riskless situation because you know the shares are worthless, and even a last minute bidder (say berkshire) would never justify paying a premium equal to their own market value for essentially the GM shell/brand.

To further clarify, I am not allowed to trade individual securities so I do not actively believe or try to "beat" the market. The prime broker my firm uses regulates and administers our personal accounts (we have to register them).

And then of course, most of the securities I deal with require ISDA.

Report this comment
#12) On May 09, 2013 at 1:37 PM, Valyooo (99.35) wrote:

Well anybody that believes EMH shouldn't believe in relative value either because an efficient market would not allow for such mispricings

 

u an not specifically taking about vix, but rather vxx which is clearly a much more broken etf. I only use about 1-7% of my portfolio to short it depending on my outlook. Black Monday would not have wiped me out, just would have made me uncuncomfortable

 

 

the stock market does not follow a normal distribution. These "one in a million" occurred have happened more than once in the last 100 years. In theory a mathematical view of trading is beautiful. In practice there is a reason why quants have een underperforming on average for quite some time

Report this comment
#13) On May 09, 2013 at 1:40 PM, Valyooo (99.35) wrote:

Also I would like to add that In 2009 I bought some of the worthless GM stock after it was declared worthless based on a few factors and made 37% in one day. Clearly that made no sense, but anybody who would hve shorted near the money calls would have gotten a call from their broker

Report this comment
#14) On May 09, 2013 at 1:44 PM, CCharing (89.11) wrote:

Hm my argument regarding the vix short is that if you're using 1-7% of your capital and based on how infrequently these trades can  be executed (relaxing your standards is what gets you killed here) it almost isn't worth the time?  It's almost like a hobby within an existing portfolio.  Cause if you had funds devoted to the endeavor it would be an underusage of capital to have to have 93% of it in cash just to capitalize on vix trades.

With institutions, they don't care of EMH when it comes to finding said "impossible opportunies" they just care about measuring the risk said opportunities incurr...

Report this comment
#15) On May 09, 2013 at 2:05 PM, CCharing (89.11) wrote:

I think your response, like your trading/investing style, belies too many assumptions...

 So when I was salivating over this the calls were going at a premium of $.55 while the equity was at $1.7-1.8X. The call you would have done this with (to imply Berkshire valuation) was the $2.5 strike.

You can do the share count x $2.50 yourself- im not just saying that cause your cute anecdote that tried to find the flaw in my trade... 

1. +37% is still under strike price 

2. Why would your counterparty exercise vs selling the option to capture time premium.  No one does that.

3. Even if it crossed above the strike, the break even at $3.05/share (never got that high).

 

 

 

Report this comment
#16) On May 09, 2013 at 3:30 PM, Valyooo (99.35) wrote:

I wasn't lookin to poke a hole in your flaw I'm just saying your trades aren't 100% risk less. Of course nobody would exercise early, you're missing my point, which is if you sell a call naked an the call goes up in value by multiple hundreds of percent you WILL get a margin call. Unless you're trading in the same theoretical world as all of your mathematical models which puts you in the same class f hedge funds that as a group have only made 6% this year

 

companies with no value can and do go up ridiculous amounts ...look at my "shorting china" profile. Those companies got frozen, and went to like 1-2 cents, but sometimes they go up 2-500% in a day off of something weird.

 

Ill keep shorting VXX and selling puts against it and makin money off it while you can tell me why it doesn't count  

Report this comment
#17) On May 09, 2013 at 3:33 PM, Valyooo (99.35) wrote:

I have a part of my portfolio dedicated to shorting broken ETFS. It's not an underusage of capital...it's always short something 

 

also there's this cool thing called leverage. So, I can just use more of that if I am already 100% invested  

Report this comment
#18) On May 09, 2013 at 3:44 PM, Valyooo (99.35) wrote:

Selling those calls though DOES sound like a great trade, don't get me wrong, but theoretically not rrisk less

 

Why would anybody possibly buy those calls though? It doesn't make sense that their would be somebody to sell them to

 As far as your firm not trying to beat the market...why would anybody invest with you rather than just investing in SPY and saving themselves the 2/20 or whatever fee structure is in place? 

Report this comment
#19) On May 09, 2013 at 3:44 PM, Valyooo (99.35) wrote:

Selling those calls though DOES sound like a great trade, don't get me wrong, but theoretically not rrisk less

 

Why would anybody possibly buy those calls though? It doesn't make sense that their would be somebody to sell them to

 As far as your firm not trying to beat the market...why would anybody invest with you rather than just investing in SPY and saving themselves the 2/20 or whatever fee structure is in place? 

Report this comment
#20) On May 09, 2013 at 7:55 PM, CCharing (89.11) wrote:

I imagine the calls work the same way as why the common equity would rally.  There are always irrational actors in extreme situations...  You can even "hedge" the trade by buying a call with a higher strike, which takes care of all the margin problems but once again, I do not think it is necessary.  

I actually have a whole list of these sorts of retail investor 'riskless' trades that get circulated via our inhouse email...  No one at my work can trade on most of these due to restrictions though - we just pass them around for funsies. These are all small type opportunities that a larger fund can't possibly transact enough of (which lends more credence to my guess that it's just random retail investors blindly buying the common without noting the mkt cap).

In regard to your compensation question, the whole point of a hedge fund is not to "beat the market."  This is a recent mischaracterization.  The "point" is to provide uncorrelated returns regardless of the market direction.  That's why madoff's zero volatility 10% annual return was so enticing.  A consistent return over the "riskfree rate" that has zero correlation with volatility or S&P performance is more valuable than 3 digit return with a .8 correlation.  There's something implied in the numbers.

You can name any famous maco investor/trader and all of them have had a bad year at some point - usually that bad year is extremely inopportune (i.e. a lot of high sigma events).  If you showed a large fund of funds a 10 year track record of 40% per annum attributed from put skew and being short volatility, versus someone who makes 10% for 10 years 2001-2011 they would choose consistency.

Report this comment
#21) On May 09, 2013 at 8:02 PM, CCharing (89.11) wrote:

Saying that quant funds returned 6% is quite meaningless as quant funds are not about relative return...

Also, I do not work at a quant fund.  My fund is event driven/special situation.  Yes we look at "deeply undervalued situations" but not due to "low P/E" or some performance metric persay...  We recently just realized a large gain on a position involved in a legal standoff (lots of headline coverage).  The manging partner and founder is a lawyer by training.  We use math, but not in a "statistical arbitrage" type way.  Being able to communicate or benchmark your performance in a quantitative way is just a "marketing tool" if you understand my drift.

The vast majority of anaylsts have some background in Bulge bracket M&A...  

Report this comment
#22) On May 09, 2013 at 8:29 PM, Valyooo (99.35) wrote:

I catch your drift. I also understand that hedge funds are about absolute and not relevant returns. But personally if I was invested in a fund and for years they underperformed what I could've gotten by just buying the SPY, I would be very unhappy. There was also plenty of "absolute return" funds that got blazed in 2008, another reason I place high value on outperformance 

 

for whatever reason I believe you feel that I am hostile towards you and that's not the case at all. I'm sure you're more knowledgable than me in most areas of finance especially since you're probably older than I am. I just think there are some things I am good at and don't like when people try to call it completely subjective. If you don't mind I would like to be able to email you some questions if you're willin to provide email address. But I understand if you don't. I still think shorting VXX is a good strategy if done right. By the way if there are any typos blame my phone  

Report this comment
#23) On May 09, 2013 at 9:00 PM, IBDvalueinvestin (99.68) wrote:

Excellent Arguments by both CCharing and Valyoo.

Everyone give them a hand for their insight and the time they took to share this with us.

Good work...

Report this comment
#24) On May 09, 2013 at 9:22 PM, CCharing (89.11) wrote:

I acutally thought that was your impression of me - I am actually fairly emotionless, I'm just use to being blunt.  I'm use to people being blunt in return.  No animosity here.

Just one last thing on the 'underperformance'   of a hedge fund- most investors diversify their hedge funds- the only people who are intimate with a particular fund's principle partner would generally ever consider having a fund as a sole investment vehicle (maybe the fund managers mom).

What I mean is, Chanos of Kynikos is probably the greated alpha generator of all time in terms of net-short funds.  I would bet that his fund probably returns less than 7-8% on a cummulative basis.  So why does anyone care?  (here's me just guessing)

Imagine his returns are:

2008: +55%

2009: +36%

2010: -1%

2011: +10%

2012: +7%

2013: -7%

Now you might say, big deal, why would I want such a variable return?  The answer is because his fund is a proxy for shorting the market (but outperforms a vanilla index or sector short).  When the market rallys hard he doesn't get completely killed - but you get great shortside exposure.  So someone who was "bearish" would invest in Kynikos and feel somewhat secure that if their outlook is wrong they won't get annhilated by a bull market.  Similarly, many long-short funds might just focus on going long equities and invest the percent their mandate requires them to be short with Chanos.

Think of hedgies as ETF plus.  They are specialized to the exposure you want with (supposedly) alpha on top.  Obviously this is not always true, but that's the pitch.  You're meant to diversify among many hedge funds- unless you're like soros's neighbor.  Case in point- there is a fat-tail fund I read the prospectus for the other day.  It basically loses 2-4% per annum unless their is a great market dislocation.  Then they are meant to return some factor of the market disloation.  Who would invest in that soley?  it's like a hedge-hedge fund.

I truly cannot name one "big-time" fund that bets on domestic market direction (I'm sure there's atleast one).  Direction is usually a macro game, otherwise if the domestic market is in a lull (i.e. no big moves, just boring sidewase markets) the fund will underperform due to costs...

I'll answer questions occasionally here but the only email I use is my work one.  I mostly prattle on my bloomie at work...   I'm about to turn 25 - I've sorta grown up around high finance and being in a smart buyside firm really shores up one's knowledge fast.

Hmm I've had the chance to be in the same room as a few "greats" and the only observation I can glean is that they have great conviction in themselves - much less conviction in their particular thesis about markets/or position.  

Except Ackman.  I bet Ackman is a bad poker player.  The more "confidence" he expresses about a company he is long or short is actually a "tell" that he is bluffing (not that he hasn't done his research, he is amazingly smart, but that he is nervous about the situation).  HLF, JCP, Borders.  I always figured someone could make a lot of money selectively following him or doing the opposite...

Report this comment
#25) On May 09, 2013 at 9:27 PM, CCharing (89.11) wrote:

With the chanos example he might not of had a bad return cummulatively in the last 5 years but I know he got killed pretty bad in the 2004-2006 stretch and in the late 90s.  So I meant net over his career.  Lately he's been pretty spot.

Problem is in a Zirp/QE environment short selling doesn't generate a rebate interest (or atleast a very low one) so I feel that short selling will be somewhat impractical if this climate persists.  I.e. you will see great levity in names that should be crushed (but because you have to pay a huge borrow cost it maybe very risky to short).

Report this comment
#26) On May 09, 2013 at 9:34 PM, CCharing (89.11) wrote:

Also here is the link to the trader who Think or Swim is touting made tens of millions collecting put/call premiums.  Once again, this is very easy to do and is very profitable - but the moment it isn't gonna get reset hard.

http://www.youtube.com/watch?v=BquDGE9KxZQ

At the office we have a running bet on when she's gonna blow up - obvviously she is lucky because usually you blow up long before becoming a millionaire...

Report this comment
#27) On May 09, 2013 at 9:39 PM, Valyooo (99.35) wrote:

Yeah the rebate is definitely one of the reasons not to short. Personally though I do believe if you wait for a combination of things like seasonal, RSI, trendline, and maybe a fundamental thin to line up, and you take a direction, and you hedge by selling options against, AND you average into it, it becomes pretty hard to lose. It is unfortunate that my strategy is less mathematic because sometimes I feel like its unsophisticated and therefore sloppy. But my partner (also a caps member) has been trading/investing since 1997 and has a CAGR of about 25%. 25% a year through three huge bull markets and two big bear ones, and using similar strategies to the ones I use...that is some real consistency. 

 

Anyway, what is your degree in (if you have one) and what fields of math do you employ In your research? I ask because its been about 4 years since I took any math classes (I am 23) and didnt care much in school to remember them so am retracting myself everything I forgot. Just finished algebra and trig, in the middle of set theory (kinda hate it), next gotta reteach myself calculus and statistics (should be easy for me), but I never took linear Allgebra, Differential equations,  or analysis...are those necessary? 

Report this comment
#28) On May 09, 2013 at 10:45 PM, Valyooo (99.35) wrote:

Also I would like your thoughts on pair shorting ZSL + AGQ, and GLL + UGL

 

SLV down 40% in last 2 years.  AGQ down 70%, ZSL down 20%...the ultrashort SLV still lost big time even though SLV was down big

 

GLD flat in the last 2 years, UGL and GLL both down 20%

 

Seems liek a no lose as long as you dont short too much right before a big spike 

Report this comment
#29) On May 09, 2013 at 11:23 PM, Valyooo (99.35) wrote:

BTW, I know about that woman...I came across her video on a pop up once....

IMO, if she wants to keep it going, thats fine, but take a few million out and keep it in cash.....that way your broker cant find it when you owe him more than you're worth 

Report this comment
#30) On May 09, 2013 at 11:57 PM, CCharing (89.11) wrote:

I was a dual major -chemical engineering and applied mathematics (with a bent in fluid mechanics)... not hard to see why I prefer capital markets right?


The type of math you are inquiring about is only "necessary" if you trade more complicated products.  On trade desks at goldman et al the most complicated products are the most profitables (for the bank's traders).  The rule of thumb is the more esoteric the more lucrative.  You can charge much fatter spreads.  The problem with market participant such as yourself (and myself when I'm not acting as an agent of my firm) is that we are "small" players.  We can't even trade the instruments that require much math to understand.  You would need an ISDA- but I will caution you that you can't just "pass a series of tests" to qualify for an ISDA like you might attain a CFA (which I hear is a painfully long and diffcult process).   Part of the qualification process is that they verify the amount of "liquid/investable" capital you have.  Basically they don't want any "small fries" so they require north of $200million usd to be considered.  Without it you'll have a hard time getting any trade desk to take your call if you want to buy more esoteric instruments -such as CDSs.  You can't create that kind of convexity in "retail broker-type" securities -  you wouldn't need the math.

If you just want to realize directional convictions about the market it is not the best use of your time to learn high math- the only time it becomes really essential for us is when the underlying has derivative liabilities that we must quantify...

The borrow rate for those leveraged ETFs is in the mid-teens.  It's a very thin value you'd be extracting - and you'd be praying the borrow doesn't force you to unwind the pair at an unprofitable moment.  It's great in theory of course but execution risk and transactional costs will eat into your returns in a meaningful way.

Report this comment
#31) On May 10, 2013 at 12:00 AM, CCharing (89.11) wrote:

borrow doesn't dry up, forcing you to unwind*

Report this comment
#32) On May 10, 2013 at 12:01 AM, CCharing (89.11) wrote:

I think more "tradeable" ones are the more popular ones - fas/faz is around 500 basis pts.  

Report this comment
#33) On May 10, 2013 at 1:07 AM, Valyooo (99.35) wrote:

Would there be a reason not to shortthe fas/faz pair then, so long as it is a small part of your portfolio?

I may teach myself the higher maths strictly as a personal challenge to myself....I was an econ major and it was a complete waste of time.  My girlfriend was a chem major and I am always jealous how much more she got out of school than I did.  I'm hoping I am able to self-teach myself, not sure that it is possible. Not that I care at all about IQ, but I beleive my IQ is around 92 percentile (maybe slightly lower)....not that special, but I am hoping enough to teach myself abstract algebra.  In general, I love to learn....I hope I am able to teach myself quantum mechanics, PChem, and a range of other things throughout my life, just for the challenge. 

 

Even though the new fund I started will probably only have about 500k in AUM this summer (chump change, I know, but I am now doing pharmaceutical sales full time, this is my side project), I still would like the option of knowing the more advance stuff....I know a lot of people very, very senior in banking through my mom, so there is always the possibility of either 1) working in a department where I could actually trade an exotic derivative 2) hopefully, although doubtfully, one day manage 200mm +...20 years of hard work, it could happen in my early 40s...long shot but possible.

 

But for just computing risk management stuff, option trading math and potential arbitrage situations I guess all I really need to do is brush up on probability theory right?

Report this comment
#34) On May 10, 2013 at 7:36 AM, CCharing (89.11) wrote:

Options trading will use some of the math you are considering.

Most of the arb stuff relies on automation now so you'll need programming knowledge to compliment - if that's indeed what you want to focus on (unless you're talking merger arb, in which case that is somewhat similiar to the type of anaylsis we do  - it depends... more holistic than strictly mathy)

Much of the risk management has its roots in the academia that you have a distaste for.  VaR is at best a rough approximation for risk.  Really I find that if you use the math in the strategy then you'll need the math in the risk anaylsis.  So like merger arb risk management is generally holstic, stat arb is caculated with high math, etc.

Report this comment
#35) On May 10, 2013 at 6:25 PM, Valyooo (99.35) wrote:

I don't have a distaste for the academia...I just have simply noticed that in my experience, which may not be representitive of the population, that a lot of the quatntitative risk management guys 1) perform on par with everybody else yet think they are superior 2) think any non math based strategy is stupid and arbitrary

I like the academia, I just don't understand it all....I am fixing that now. 

Report this comment
#36) On May 14, 2013 at 7:52 PM, CCharing (89.11) wrote:

^ isn't that just someone else's dogma repeated?  Quantatitve risk management guys just want to manage risk - performance is not something that is emphasized.

I mean, I have yet to see any fund (regardless of stripe) perform on par to renntech.

+80% in 2008
 
30%+ since inception with relatively little performance deviation

And they don't take outside money - seems pretty reasonable if they are that consistent. 

Using LTCM as a proxy for quant funds is a little unfair.  There are a lot of small algo-driven shops out there that you've never heard of because their investment capital is soley made up of the principles own contributions.   

Report this comment
#37) On October 11, 2013 at 6:47 PM, KCchiefers (< 20) wrote:

So what is the catch?  ....other than the 3+sigma event scenario  CCharing mentioned, and max return of 99% (loss of compounding).........is there a risk of the broker/company calling in the shorted shares at an inopportune time?

Report this comment
#38) On October 11, 2013 at 6:52 PM, KCchiefers (< 20) wrote:

Looking at a chart, is seems the only way you can lose is if you are short -> volatility spikes -> then the broker calls in the borrowed shares, and you're stuck with a loss. Is this a legitimate risk to this strategy?

Report this comment
#39) On March 26, 2014 at 4:57 PM, kowkow (< 20) wrote:

This discussion is useless. You can't short the VXX - you can only buy put options. They already account for the naturally expected deterioration. There's no play here.

Report this comment

Featured Broker Partners


Advertisement