Director, there is a detail I'm missing here. How do you arrive at the width of either spread (what criteria decides that)? I understand you are buying the nearest OTM put for the VIX spread and nearest OTM call for the VXX, but again what determines the short strike? 5/31/17
Yes- so for VXX I am selling a call with at least 500 OI and for VIX at least 1,000 OI. For VIX also, must be at least seven handles in the money 5/31/17
Alright, and for the number of VXX spreads, is that attempting to achieve a neutral delta, or perhaps a credit that pays for the max loss of the VIX spread? 5/31/17
It's to balance out the buying power reduction of 10 contracts of VIX. In reality VIX should probably hedge VXX, up to 70% of the buying power reduction, but that's for another analysis 5/31/17
So roughly 45 days from now (July expiry on both VIX and VXX) would the following trade fit your criteria? 10 contracts VIX 20/10.5 pcr, 13 contracts VXX 11/14 ccr BPR $4000, half to each spread. 5/31/17
10 vix contracts is default value because cant change this in TOS. Using ~$2000 in bpr would be fine in account over 20-30k. You'd want to use less contracts in a smaller account. 5/31/17
Is there a reason you wouldn't use a VIX call debit and VXX put debit (synthetically the same) in this environment with the VVIX (volatility on volatility) being low? 5/31/17
Volatility less impactful with a spread. They are identical however, and you could make that argument for another analysis. Having VIX hedge VXX, dynamically modifying size based on VVIX (less VIX contract with lower VVIX) is a strategy I'd like to test, time and availability depending 5/31/17
I understand you are buying the nearest OTM put for the VIX spread and nearest OTM call for the VXX, but again what determines the short strike? 5/31/17