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Thursday, 1 March 2012

VIX - how useful is it as an indicator and hedge?

Who knew my previous post (or non-post) on index investing turned out to be one of those "throw brick; attract jade" kind of catalyst where the comments got veered towards hedging at the very end...  

In my search for alternative hedging strategies, I focused on the VIX.

I found the below article quite interesting. For those interested to explore using the VIX as an indicator or hedge, you may want to take a peek at it.


 

34 comments:

  1. Coconut,

    Hey! You are right! At the end of the article, if everyone rush to hedge by shorting the S&P futures, it inadvertently drove the underlying shares down further...

    We need to be early. If everyone rush to the exit at the same time...

    I think the explosion of ETFs is adding to the volatility. If your mandate is to blindly track an index, if the index falls, the ETFs will sell in mimic - adding fuel to fire.

    ReplyDelete
  2. Temperament,

    I think I'll stick with plain vanilla hedging via index futures.

    Plus look into implementing simultaneous long/short positions on different individual companies (using CFDs as my shorting vehicle), as and when needed. Borrow with pride from hedge funds.

    And of course having some silver, some currencies, some bonds in other asset classes.

    LOL! I am back to being "rojak"!

    ReplyDelete
    Replies
    1. only one reminder, don't take it that you are hedged and safe. take it as though you have 2 positions, all expose to risk. you will be alright.

      Delete
    2. and if you are trying spread trading, thinking that your position is hedged while picking up money, you will tend to over trade and expose to extreme risk. trade with extreme care.

      Delete
    3. Coconut,

      I am not competent to handle spread trading (yet).

      I've tried pairs trading in the past:

      Have a view crude will rise - long offshore marine counter; short shipping counter.

      Discovered that sometimes both will go up and down together - like gold and usd don't always have an inverse relationship ;)

      Then realised why the hell I don't trade the crude futures directly instead? Keep it simple stupid! LOL!

      What to do? I learn by stumbling along.

      Delete
    4. wow! your idea of spread trading is totally wrong. you are looking for spread between 2 similar counter. not counters that go the opposite direction!!

      the 2 counter supposingly should go the same direction. for example, long brent crude and short nymex crude.

      Delete
    5. haha starting to worry for you, why not just stick to investing. if you want to learn trading, it takes a lot (i meant hell lot) of time and effort.

      Delete
    6. oh and money too. if it is your hard earned money, its make learning even more difficult.

      Delete
    7. damn, i though i suppose to "unlearn" all these crap and start learning investing.

      can someone advise me what to buy for a start?!! i'll learn that myself later.

      Delete
    8. LOL! Ya lor!

      That's what I meant by "learning by stumbling" along!

      Blur like sotong!

      Coconut, I introduce you to this value investing forum:

      http://valuebuddies.com/

      There are a few "titans" there that are very solid. Got fund manager, ex-company director, retired businessmen, etc.

      But I don't tell you who least I introduce bias into your thinking. You figure it out yourself.

      You can see my "clowning" around under the nick of Jared Seah :)

      Delete
    9. wow, got big headacd already after visiting the forum.

      Delete
    10. Sorli sorli!

      Forgot to give you warning that you must first find all the missing screws in your head!

      They write in complete sentences.

      LOL!

      Delete
    11. if i can find them i would have found them already!

      i guess i will have to learn by myself, my own way with lots of cow-sense haha.

      Delete
    12. i did saw a lot on temperament, he must be well into his retirement. asking the same question from there to here haha.

      Delete
    13. Coconut,

      Yes, you are a very unique individual! Off the shelf clothing are not suitable. Go for tailor-made!

      Delete
    14. Hi SMOL,
      Yes 0ne K is enough. KK will do us in.

      Delete
  3. "i did saw a lot on temperament, he must be well into his retirement. asking the same question from there to here haha."

    Unquote:
    Ha! Ha! Coconut. For me i don't care. i believe the day one stops wanting to learn from anybody or something, is the day you are going to die---- Your brain will be dieing liu. So you know by now how thick is my facial's skin. Ha! Ha!

    ReplyDelete
    Replies
    1. true, especially when we getting older.

      ever since i can remember as a kid, i always defy especially towards higher authority like teacher, parent, and who ever want to teach me a lesson.

      i'm just born with it. why must do your way? luckily i'm more able to accept other when getting older.

      wiser? i'm not sure but things are getting better and less frastrated.

      Delete
    2. can i ask a stupid question? does forum same as blog like this? i mean can we express the same way in forum as in blog? what are their different?

      Delete
    3. and temperament regarding your question about hedging your portfolio, i guess there is a fundamental problem with your risk attitude. like a person who too much worry about their life and bought too many insurance policies.

      i'm not good in investment but i suggest you diversify your portfolio in a way that some are risky and some are low risk like fix income. hedging is not recommended. hows that?

      Delete
    4. on a second though, i guess temperament you kind of like smol (you 2 are buddy) willing to give a try to out guess the market and make a little more money.

      trading is like gambling, a little is ok but too much you can get seriously burn easily.

      if you are too worry about your portfolio risk, down scale to a comfortable level is the best way to go.

      Delete
    5. lastly i want to share what i know is very destructive in any trading and investment, which is what i call rolling effect or one leads to another effect.

      in another words , mistake will come in a roll, one leads to a bigger mistake without you even aware of it.

      the best way is when you make a mistake, get out and stay out.

      Delete
    6. Coconut,

      My own "one screw lose" definition:

      In blogs, you can only add comments to posts/writings by bloggers like me and Fat. You cannot write your own posts in other people's blog.

      Unless they open access to you as co-blogger or guest blogger. Eh? You still around?

      In forums, you can start your own "thread" or writing. Then others can add their comments and feedback to agree or disagree with what you have written.

      But you need first to register as a forum member to do any posting or commenting. If not, you can only view; cannot talk. Hmm, that will be tough for you!

      Forums got writing rules. What can write, what cannot write. If you don't follow, "moderators" in forums can give you warning, delete your posts, and/or ban you. Ouch!

      I think it's better you start your own blog. Then I can go poke poke you! Take a look at www.blogger.com

      Delete
    7. ah so, got rules? forget it haha.

      it seems to me is the same, everybody chit chatting. yours better!

      immagine i started a post saying spread trading is like binery star system, they will kick me out haha.

      starting my own blog? na, i prefer to poke than got poked.

      Delete
  4. Hi Coconut i think by hedging using direct inverse STI index or inverse STI ETF if available, we will be able to let our SGX portfolio runs wild with the BULLS in the Market.

    And thanks for your concern, actually my money in the stock markets is always :- "Big wheels keep on turning. Proud Mary keeps on burning. And we're rolling, rolling, rolling on the river."

    ReplyDelete
    Replies
    1. Great balls of fire!

      If we all are jazz musicians, is this great jamming or what?

      We play what we want to play, no music scores, no conductor to tell us when or what to play.

      No offense given; and non taken. If one of us wants to do our solo, hey! Whatever makes you happy!

      Play on!

      Delete
    2. ""Big wheels keep on turning. Proud Mary keeps on burning. And we're rolling, rolling, rolling on the river."

      i want i want! sounds like good investment strategy, what does it means?

      Delete
  5. Sorry, it simply means you have marked out your money for investing in the stock market and nothing else; Such that it gives you the liberty when to buy and when to sell. And when to take out some money for your enjoyment, if necessary.
    In short, you can do what you like with this "money". Not even Mr. Market can force you to do anything. Ha! Ha!
    Cheers!

    ReplyDelete
  6. er may be not so suitable for me after all.

    hay if you see something nice grab first, ask question later haha.

    thanks thanks.

    ReplyDelete
  7. Yes, sometimes, he who hesitates is lost. The Samurai's motto. So is MR. Market's.

    ReplyDelete
  8. And i have more than once real life experiences:-

    We saw something we liked and my wife happened to have our checkbook in her bag, we decided to buy on the spot. Half way into the process of filling the paperworks, another couple approached us, telling us, "We are first to like & want to buy what you are buying, but we have to go home to get our checkbook". So what happened then? You guess?

    "hay if you see something nice grab first, ask question later haha."

    Unquote:
    Hay it's true, you know. Never mind the outcome. Some of the times, you have to trust your guts, on the spot.

    ReplyDelete
    Replies
    1. Temperament,

      Some people very cute. "Zhop" seats at hawker centres also must use tissue paper mah. "Tissue paper" left at home? Sorli man!

      I am guessing it's your studio you have bought ;)

      Courage to act comes from preparation. Preparation comes from practice/mistakes/stumbles.

      Delete
    2. Ah SMOL, true , true.
      So is:-
      "A wise man learns from others' experiences".
      "A fool learns from his own".
      "A simpleton never learn".
      "His Grace just gifted him differently".
      Amen.

      Mickey Mouse 470sq ft.
      Yes, for diversification of income generation. If don't like the hard work, i still have the option to sell. In fact it is ITM already. Although not worth it, IMHO.

      Delete

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