Hey guys, I decided to do things a little more differently. Instead of me annotating the trade, try and see if you can figure this out yourself. This is a good example of how the $VIX + technicals on the broad market, move the leverage ETFs like FAZ or FAS.
In this chart, I shorted FAZ using the green colored arrows. You also could have went long FAZ using the red color arrows for a ridiculous gain. The question is, Why?
Use the VIX and the DJI chart in your answer to why you would short or get long FAZ at the red and green circles. I’ll give you answer later this weekend.
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BTW, DRYS to $4!!!!
3X ETFs, what a great scam.
that’s why i prefer to short them. Short FAZ for bull, short FAS for bear. I think they’re “declining assets”, almost like delta is to options.
You can get some interesting results correlating the VIX to these ETFs.. Just ran a back-test (since their inception in late Nov08) on the Direxion 3x bull and bear ETFs while using the VIX as a buy/sell signal.
$10 per trade commission
10% exit trailing stop enabled
$10,000 on each trade (nothing compounded)
well, after testing with a bit over 2 months of data:
Symbol Profit-Loss Profit-Loss %
BGU $14,462 144.94%
BGZ $16,898 169.54%
ERX $16,230 162.53%
ERY $14,873 149.23%
FAS $17,618 176.33%
FAZ $25,559 256.26%
TNA $20,258 202.83%
TZA $21,837 219.18%
Average wins: 70% (19 wins to 9 losses average).. 800% average annual return.
Luda.
shazbot, what is the entry and exit criteria?
Gio, I think you meant theta, rather than delta.
yes he did mean Theta……
Hints to the quiz are on my stream:
For the Green arrows…
http://www.stocktwits.com/u/thehawaiitrader/1162268894
http://www.stocktwits.com/u/thehawaiitrader/1162003555
http://www.stocktwits.com/u/thehawaiitrader/1162297249
For the red arrows…
http://www.stocktwits.com/u/thehawaiitrader/1162403646
Can’t have delta without theta, right? 😉 Yeah, you’re right, I really meant time decay in the context of volatility, so both theta and delta work…
The lower the volatility, the more the value of the asset decays. Therefore, if the VIX (which measures market volatility) is strong, then it makes sense to me to go long the leverage ETFS, while if the VIX drops, ie the tape gets “boring” then the asset/ETF decays so I short em. Does that make sense? shoot, I don’t know, I’m not much of an options trader.
Oh yeah, Shazbot, those are some good results. Another way to illustrate “theta/delta”, notice the path of the VIX and compare to the path of the Direxion 3x. what do you see? ah ha!
If you’re tying option price to volatility, you’re in fact talking about vega.
Theta is decay due to time. Delta is the ratio of option-to-underlying price change.
Theoretically, only vega is affected by a change in volatility.
thanx Dpeezy! now i got schooled twice on this post. ironic thing about it, its entitled “quiz”.
How about V-Delta, for leveraged ETF-to-underlying VIX change. haha, I’m confusing everyone now.
Will $vix.x work the same as ..
…. $vix.c ?
Will $vix.x work the same as ..
…. $vix.c ?
i fucked up the back-test with ameriturd. will post new findings soon, still very promising.
An elastic see-saw, its mirror image and one which somewhat resembles it go into a bar. The barkeep says “what ya having” and the 1st says “when I get to my table” the 2nd says “I’ll make the order” and the 3rd says “finest scotch in the house”.
The barkeep says “I’ll take it off your tab”.
Whaa lol
i still don’t get it @manatrader. sorry, i’m slow. explain.
VIX break made for Dow new high/low so you go short/long FAS/FAZ? Not necessarily in that order maybles
@Woodshedder – Well, I thought I had goofed up the back-test, but I confused myself…*Seems* legit. I’m new to this, bear with me.
10% stop loss
Testing in 15 minute intervals
Entry point for bull 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval 95
Entry point for bear 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval > 95
Exit point for bear 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval < 5
Let me know if you can verify the validity..
looks like the last post got goofed up.
reposting
10% stop loss
Testing in 15 minute intervals
Entry point for bull 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval less than 5
Exit point for bull 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval greater than 95
Entry point for bear 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval greater than 95
Exit point for bear 3x ETFs:
RSI(Length 1) of the VIX on a Daily interval less than 5
Shazbot, very cool idea. That is something I’ve been wanting to test, in fact, I had mentioned trying out an intraday system for the VIX.
As I’ve never coded anything intraday, it may take some adjustments, but I’ll get it done, hopefully over the weekend. If it shows promise, I’ll post it. If not, I’ll just come back to the comments section and discuss what I found.
To be clear, you are using a 15 minute bar?
And RSI(1)? I didn’t think RSI(1) would work, but I might be wrong.
If RSI of VIX is greater than 95 then buy next bar (of 3x bear) at open
If RSI of VIX is less than 5 then buy next bar (of 3x bull) at open
You mention daily interval but also 15 minutes, so I’m not sure exactly how to set it up.
Basically, I can test over bars. On a daily time frame, 1 bar = 1 day. On a 15 min. time frame, one bar = 15 minutes.
If you could just confirm I have it right…
Note: The comments section will not allow greater than or less than signs. It will completely screw up your comment.
Woodshedder: I think we can forget the 5 and 95’s. With RSI(Length 1) on a Daily interval, it is always going to be 0 or 100. Also, with my strategydesk setup I am able to check in 15 minute intervals, which I’m not even sure if that makes sense when considering RSI(1)on a daily interval, but the system is triggering some mid-day trades, however MOST occur at open (9:45am). I just tested again with buying/selling at open, instead of checking in 15 minute intervals, and it still works fine.
But anyways, yes you have it right.. “it” being
If RSI of VIX is greater than 95 (or 100) then buy next bar (of 3x bear) at open
If RSI of VIX is less than 5 (or 0) then buy next bar (of 3x bull) at open
Let me know if you want me to post the resulting trades in a spreadsheet..
fyi, I’m spinning it a few different ways, and it all basically works the same. For example, if RSI(2) of VIX is greater than 80, buy Bear at open.. if RSI(2) of VIX is less than 20, buy Bull at open.. Obviously there is tweaking that can be done..
See my recent post.
I believe this system is just another variation of the short-term mean reversion, except here, we are looking to catch the volatility as it reverts to the mean, rather than price. I’m not sure how much difference there is. I will get it coded up and take a look. Might be instructive in terms of comparing it with other short-term MR systems.
Yeah, post the spreadsheet. And you might consider just putting up a post in the peanut gallery. It would be a good topic.
Aw shucks got it all wrong there’s the whole ‘previous tilt point’ assessment. Fargh.
I’m coming up with a chart with leverage ETFs versus VIX this weekend, this time using the 3x in the past 2-months. I already talked about how the other inverse ETFS, like SKF and SRS are correlated with the VIX. Should be an interesting study.
shazbot, email me your Vix versus RSI back test on spreadsheet. thanks.
[email protected]