You are selling too soon.
Your long term premise is correct but you aren't trying to understand how most other investors are digesting the fact that interest rates will go up in the future. Most other investors have decided that the event is far enough in the future that they are willing to pay more now. With that being the case it does not matter if you don't agree. Thus you are selling too soon.
Timing is critical. I have made this mistake myself when looking at data and predicting an outcome only to find out that other investors were willing to stay invested closer to the actual event than I had anticipated. It is one aspect of investor sentiment that one has to acknowledge or it will throw off your timing and in some cases, as in this case, my as much as a year or even years, depending on what the Fed decides to do which we still don't know for sure.
It will be clear when it is time to short this puppy. It will be right about the time that the Fed actually starts to raise rates. I’m just glad that the stock is going up in value so it has farther to fall when they drop the shoe. I would be long AGNC now if it were not for the fact that I can make more money elsewhere. And I am a big fan of shorting this stock when interest rates start to rise so obviously I am not on the opposite side as you altogether. I just think that the ideal time to do this trade isn’t here yet and won’t be for some time.
The most profitable trade to have made in Feb. 2014, from my perspective, was to short VIX ETFs like TVIX or buy long inverse VIX ETFs like SVXY. I only have 20% of my equity investments in this trade but the profits from it have exceeded the profits from all my other long positions during the same period of time. From now on I will be shorting the VIX on every VIX peak. To me is seems like free money. At this time I would like to thank all long VIX investors. Your money is much appreciated.
Just to be clear. No one in this thread was promoting buying long positions in the volatility indexes or their ETFs / ETNs. The only long position that anyone has condoned is the inverse volatility ETFs that are short positions in of themselves.
Also, I have been very clear in the wording of my post in this thread and other related threads that I do not clearly understand the underlying mechanisms of these volatility ETFs and the indexes on which they are based. I have made it clear that I have based my conclusions on how these ETFs erode over time and how they behave in corrections.
The basic premise that I make is that they have steady erosion which I recently learned is because of the behavior of the rotation that occurs from the current month's option contracts to the next months option contracts. The next premise that I make is that because the VIX always returns back to its low volatility condition eventually, that any short position made near a volatility peak can eventually be covered at a profit given enough time. The erosion of volatility ETFs aids in this as well. There is nothing more to it than that. The rest are details.
The fact that volatility indexes are such bad investments is why shorting them is a good investment. The only thing that would ruin this party, it would seem, is that if all the people who buy shares in these ETFs stop doing so and thus there would no longer be any shares to short. Let’s just hope that there will be people will continue to lose their money on this investment so we can pocket their losses.
Also, if the people who are buying options on the ^VIX are losing money on a regular basis then it only follows that the people writing the options have to be making it on a regular basis. Of course one has to be aware that when writing options one must limit it to a small percentage of your account value. That goes without saying but just to be clear for those who are unfamilar with the risk.
I'm not sure we are in disagreement. I was pointing how bad of an investment these volatility indexes are because of their rapid erosion which causes them to always lose money long term. What I am doing is making money on the short side because they are such bad investments. So from that perspective are we in disagreement?
Just look at the two year chart of TVIX and ask yourself if a total moron could not make money shorting it.
Even though this article was about VXX, the price erosion for TVIX and UVXY is much greater because they are leveraged where as VXX is not leveraged. This makes them a more reliable short with lower risk. That is why I call shorting TVIX free money.
If you do not want to become part of the 1% then ignore this topic. Owning a dividend stock is a good way to sustain the value of your money against inflation with additional growth on top of that but you will not become wealthy with this approach so it can be safely said that you are protected from becoming part of the 1%. In this regard you will be safe in that you will live a mundane life free of the trappings of wealth.
But then you can make a lot of money and never tell anyone and continue to live like you don't have money and your current friends will not feel intimidated by your wealth because they won't know you have it. You could be a covert 1 percenter and go around donating most of your money to thankless poor people so you can feel consistent about the ideological commitments you had before becoming wealthy. But there is a problem with this scenario which is that once you become wealthy you probably won't do this. It is more likelu that you will become a typical 1 percenter. So it is better that you stick to a slow growth approach that guarantees that you will not be tempted to be a typical 1 percenter. You know the story about getting a camel through the eye of a needle. It cannot be done.
It is clear to anyone who looks at a volatility ETF that there is a reliable price erosion that an investor can exploit. I found a web page that discussed this topic. The main topic of the article is how VXX ad VIX options differ and why one would be better of trading VXX instead.
Here is a quote.
"The VXX, and hence VXX options will be sensitive to the relationship between the current and next month futures prices on volatility. The VXX shifts its weighting between these two months on a daily basis. Generally this results in a price erosion force on the VXX relative to the VIX index because the further out month is usually higher in value than the close in month (called “contango” in futures parlance)"
This explains the steady erosion and why it is so profitable to short them.
"The implied volatility of the VXX options should generally be lower than the equivalent VIX options, because it is the mix of two months of volatility futures, not one like the VIX options. For example, for June expiration the volatility should be about the same the day after the May VIX options expire (because both sets of options are tied to June futures) , and the VXX option volatility should decrease relative to the VIX options as the time remaining on the June options decreases and the VXX picks up more weighting in the July volatility futures."
"◦The VXX options quotes/option chains will be easier to find and their greeks will be correct. And everyone, including Schwab and Fidelity report incorrect greeks for VIX options– LIVEVOL being the only exception I am aware of."
"◦The VXX options have American style exercise rather than the VIX option’s European style exercise. The European style exercise is necessary on the VIX options because the VIX options and VIX index are only guaranteed to be close once—at expiration time. The VXX and its options will naturally track each other well, so American exercise is ok."
Shares in UVXY do not represent ownership in a company but they are shares and they can be bought and shorted. And I suspect that option contracts that have been written can have shares called away as well. With respect to the option contract it is these shares that represent the underlying shares. Where as in the VIX options there are no underlying shares. The options themselves are all that there is and that is what makes it so strange and probably why they trade differently than other options.
I would not own an option that I cannot sell anytime because that is now how I invest in them. The only time I have kept them to expiration is when they are worthless because there is usually a more optimum time to sell before expiration.
All ETFs are shares. That is why they are ETFs instead of mutual funds so they can be traded as shares. ETNs are new to me. I am unclear what the difference in the name means where the N represents the word note but there must be some difference in the legal sense or they would be ETFs. UVXY is not an ETN, it is an ETF. But I don't think that makes a difference. TVIX is an ETN and I have a short position in it right now so it seems to trade no differently. In order to short it then it has to be a share because to short something you have to have something to sell.
However something is strange about TVIX because the last I checked there were more shares shorted than its market cap and the date of this data is before I shorted and I had no problem shorting it. So something strange is going on. It could be that the data I have access to is not accurate but I got it from the NASDAQ web page.
UVXY is a 2X VIX ETF for which you can trade options and thus there is an under lying stock. In hind sight here is what would have been the perfect trade for this stock over the last month.
Jan 22 UVXY is at $59. This sets your return to value.
Feb 3 UVXY it is at $100 - write $60 in the money calls on Feb. 3 that expire in March and pocket $40 per share.
Feb. 18 UVXY is down to the low 60's and you can purchase back your contract for about $5 per share for a $35 per share dollar profit In15 days.
What other investment strategy out there drops that high of a percentage with as much predictable consistency. All you have to do is wait for the ^VIX to rocket up during a correction, let it flatten out and then sell the call contracts on UVXY.
What I don't know is who would buy a $60 UVXY call that is $40 at the a ^VIX peak. So one might have to settle for a smaller amount but then the risk goes up because the upside potential losses are the same either way. The most desirable thing is to find an options newbie willing to buy a contract which is in the money by the same amount as the price you expect UVXY to decline to in the coming month. There is no point in going lower and less profit to be made if you go higher for the same risk exposure.
I'm going to call my broker on Monday and ask him if it is possible for ^VIX call contracts to get called away since there is no under lying stock to purchase. If not then this would make selling a call contract on the ^VIX more predictable. It would seem that options on the ^VIX are a unique breed because unlike all other options, there is no stock to purchase which if there was it could cause a contract to get called away if the person you sold to wanted to do this. So I would like to understand how such a contract could get called away if it can. Would they treat it like a phantom purchase? And if so it would only make sense if the market maker with a imbalance of contracts could do this as anyone else who owned an option would simply sell it to someone else. Because if you are calling a contract for which there are no under lying shares then what are you calling? It might be possible that they have created a work around so that market makers can weasel their way out of losing positions as they might not be able to hold such positions otherwise and thus there might be no way to make the market.
I am hoping that is simply a free for all for investors where optimistic option buyers with aspirations of getting rich quick are out there trying to play the volatility, as crazy as that sounds, and call writers are patiently raking in the money as most of their options expire worthless. If that is the case then surely this would be a nice way to make money so long as you keep your exposure at a low enough percentage of your account that you can ride out any event. Of course if you do this at the economy is entering a recession you are going to get burned badly. But so far I have predicted the last two recessions before they happened and it seems that it is not that hard to do,
Anyone who is biased by the idea that their political party is never responsible for recessions should probably not invest in this when their party is in office.
Look at the number of options being traded on the ^VIX. It is more than most companies even MSFT. My guess is the option wrirers are making most of the money. They make a play that makes money when the ^VIX returns to the value it is at most of the time basically taking the money of option buyers who are gambling that it will be at some extreme in the future. The buyers win sometimes but not enough to come out ahead. The buyers also only make money if they time their sell at a peak and the seller covers losses by writing deep in the money calls at those same peaks. But if you only write calls at the peaks you avoid the losses. Experts probably know how to write calls all the time and make money but you need deep pockets to do that so you can survive the swings. Better to just be patient and sell when the likelihood of wining is so high that the risk is minimal.
I cannot figure out how the inverse VIX ETFs stay in business without an under lying investment because investors in them seem to be making money consistently. It is like a cssino that lets the players win most of the time. So there must be something that they are investing in. My guess is that they could be selling ^VIX call or put options or both. I was thinking that it would be proftable to sell in the money calls whenever the ^VIX exceeds 20 and then wait for them to expire worthless. The risk being if you sell them before it peaks and it does not return to low volatility before they expire. But a quick look at past behavior over a few years should give one an idea of which options to sell so that one has enough time. My only concern is that since this is such a high probably win would that make the options likely to get called.
One thing that is near impossible to determine unless you have the ability to track most stocks easily is that a stock index can be flat for the day if one half of its stocks rocket up and the other half rocket down however so that the price changes cancel however volatility of the individual stocks should be high. From this insight I might surmise that on down days there is more of this going on than on up days and that would explain it but I am skeptical to take that as an explanation until I see proof of it. But it does give me something to look into.
I read and article on Investopedia which said that the VIX is the variance times 100. The variance is the square of the standard deviation so it is direction independent. So now I have to assume that this article is either right and the kind of changes during market up days are not the same as market down days or I have to assume that the guy who wrote the article isn't 100% correct and that the actual ^VIX that is calculated by the CBOE has a component to it that is direction dependent. At this point I am not willing to discount either possibility.
Since I wrote the previous paragraph I found a PDF from the CBOE site that has the same formula. Obviously I have some studying to do.
The formula takes the difference between two squared terms. Maybe the negative term is responsible for this behavior but I haven't looked at it more than simply glancing at it.
look for " formula for calculating the VIX", first and third hits
Can you explain exactly why this is the case. I would like to hear the logical arguments that you used to come to this conclusion. So are you suggesting that AGNCs stock price will continue to go up when interest rates start to rise? How so as this has never been the case for an mREIT before?
If you do a calculation of volatility if will not matter if a stock price is going up or down so long as it is changing. However if the market goes up by a lot then the ^VIX will go down and if the market goes down by the same amount then the ^VIX will go up. It seems like the ^VIX index is more about the rate of change in a specific direction as oppose to the rate of change in any direction. There may be a logical reason for this but then the word volatility in this case is misleading. Because high volatility is only seen for negative moves and not positive moves, so it seems.
The point to be made about the war experience is that once my family moved to the US they developed loyalties for the US. Granted there were some Germans who spied for the Germans but 99.9% of German Americans would have turned them in had they known about it. Most German Americans who were of age took up arms and fought the Germans and did whatever was asked them no matter how unethical it might have been in some cases, they did it for their country because they were loyal to their country, not to their ethnicity. I think this says a lot about how the German Americans committed themselves to be loyal US citizens. Back then in a time when people were more likely to get in fights over issues of saving face, if you had questioned their loyalty to the US it would not have gone well for you.
There is a huge difference in attitudes toward tolerance in the world. Go to large city in Germany and walk down the street yelling out to everyone you see that you are a Muslim and all that will happen is you will get a sore throat and people may look at you as if you are crazy. You could do this for weeks and nothing bad will happen to you. Go to a large city in the Middle East and walk down the street and yell out that you are Christian and see how that works for you. You won’t get a chance to get a sore throat. I doubt that you would last an hour if that.
The image that a group of people have is theirs to make. You can work to have a positive image or a negative image and in the end it will be up to you. When people harbor terrorist or when they say to other people that they are proud that their son, friend, or relative died as a suicide bomber and that they know he will be rewarded in heaven so as to encourage others to follow his lead, then there is an image that has been created by this. It is not created by the observers of this behavior. It is created by the people doing it and saying it.
Europe has similar requirements. My daughter is going back to college in Prague for her master’s degree and I had to give her proof that she was insured for the 6 months that she was here in the US or they would not have allowed her to buy insurance right away. She would have had to wait. Anyone with basic common sense can see that you need something like this to keep people from trying to figure out ways to cheat the system and that is exactly what they are doing with Obamacare.
However my maid is doing great with Obamacare. She already had insurance so obviously she was already getting along without the subsidy however now her $300 a month payment declined to $75 a month for something she had already figured out how to fit into her budget. She was already living without the subsidy. Her child is also getting $25k a year to go to college. She was told that she would have to pay for all the extra expenses out of her own pocket as if they were expecting for it to cost more however it cost me $22k for my sons last year of college which was about one year ago. Assuming that she can live on the same amount then she will be pocketing $3k. She is going to a school with lower tuition so I suspect that she will pocket even more. Or maybe she will get a nicer apartment or not have to share one with roommates.
The mistake that I made is that I did not change my name to Gonzales. Had I known what the new world paradigm would be I would have done this as soon as I graduated from college. But it is too late now. But if you are younger I would highly recommend a name change so you can tap into this flood of money that is being spread around for the right kind of people. These people never see you in person so you can claim to be of any ethnicity you want. I work with a lot of Hispanic people who don't look any different than me. Seriously, you can easily get away with this.
The Republicans proposed to replace the individual mandate with a requirement that insurance companies had to cover someone's preexisting conditions if they had insurance for at least 18 months and initially this requirement would be over looked until everyone had a chance to get insurance. So you could legally decide not to get insurance but you would be crazy to do that because if you got cancer you would be paying out of pocket for 18 months.
From what I understand, for the low cost of $2k a year you can bypass Obamacare and live without insurance and then if you get cancer no problem. You simply sign up for the best insurance out there which they have to offer you and then get the best treatments available. There is nothing to stop people from doing this.
My guess is that the insurance companies saw this coming but there wasn't a lot they could do about it because they were not writing the laws and apparently the people who were writing them were not taking the insurance company's concerns seriously. But this is not uncommon with the Democratic Party because they take the attitude that greedy insurance companies will say anything to make more profits and so you have to take anything they say with a grain of salt. Just listen to them talk. You can't learn from other people's experiences if you think that everyone is telling you lies. I'm pretty sure that the insurance companies must have thought and said that $2k was not enough to prevent this kind of fraud.
Had they been more willing to involve the Republicans on this issue a more logical way of motivating people would have been proposed and none of this would be happening. But they wanted to do it on their own. What we have now is the best law that the Democrats understood how to draft in isolation. I'm sure they did the very best job they could. It is a matter of quality.
My father was a german in the 40s and he was flying a B17 which was droping bombs on german cities. The commander in chief, FDR, ordered the fire bombing of women and children to punish Hitler for bombing London. After that my father refused to receive communion at church for the rest of his life because he felt that there could be no forgiveness for those who followed the orders to kill all those inocents. The first wave went in and dropped bombs designed to break water mains. The next wave dropped the equivalent of napom and lit their homes on fire. They had no water to put the fires out so eventually everyone was burned alive. Children huddled in their rooms with their mothers as they felt the heat get increasingly intense until their hair burst into flames. It is no wonder why the germans are so anti war today. I wonder if Obama has similar regrets as my father about using drones to kill entire compounds in which there are children. Or if he just goes plays golf. After all its just Arabs, right?
Why don't you think about the whole picture rather than the situations you cherry pick to match a perception you want to have. You imagine that you can select isolated events in the past and from that tell an entire story with a bias that suits you.
Can you actually imagine that I would have nothing to say about the IRA if they took down the world trade center and if there were IRA members here in the US and the Irish community was turning a blind eye to their activities after having witnessed such destruction? Think about it. Apparently you didn't.
I find it hard to believe that you can actually believe these things you imagine to be true. These scenarios you conjure up are so impossible to digest as they make no sense with respect to how people actually behave. And maybe this is why you believe so much of what you do because you base your perception of the world on silliness like this. You imagine the impossible and use that as your reference point for reality and it's all made up in your head. Unbelievable.
This kind of simple minded logic is not out of the ordinary where you are concerned.
I almost bought puts today but they seemed to expensive to me. I may regret it after hours but I am interested to see what I could have made had I had the nerve to pull the trigger. Maybe nothing.
The Muslim religion is not an ethnicity. It is a religious organization. And most Muslims in the Middle East hate the US. You cannot deny that. So what is your point? That I should ignore that? You are ridiculous. It seems to me that people have you twisted up mentally to suit their agenda and they have done a pretty go job on you. They should be proud of their accomplishment. You seem to be one of their better achievements. And I guess the Muslins that don't like what the radical Muslims in the Middle are doing are bigots as well. Or is that OK because they are also Muslim? You really need to get a clear head. A philosophy like yours has so many conflicts that would lead to so many questions that the only way I can imagine that someone could avoid being preoccupied full time with resolving them would be to have created mental firewalls that allows them to be isolated or to simply be too dumb to notice. I guess you can achieve bliss either way. Good luck with that.