VIX September 2016 Put Calendar

[equus 26]

Kim, with VIX low again (around 12), the mid on the Sep20/Nov15 VIX 16 Put Calendar is around -0.50.

In previous trades you wrote (for IB)  "Please note that this trade requires $150 margin per spread", which means margin for this trade should be around $150-50=$100. When I use the check margin feature in TWS it shows Initial Margin $52, Maintenance Margin $52 and it is independent of the limit price used!

How did you find this figure or information, $150 per spread?

 

 

[greenspan76 302]

@equus

https://www.interactivebrokers.com/en/index.php?f=marginnew&p=opt

" Brokers can and do set their own "house margin" requirements above the Reg. T or statutory minimum. For option spreads in VIX securities, IB may charge an additional minimum house margin requirement of $150. "

 

Additionally, I am in a VIX put calendar right now and, although it didn't show up correctly on the check margin feature, it did calculate correctly based on $150-premium.

[equus 26]

Thanks for the link Greenspan76. How did you check to see it calculated correctly? I am also in a VIX put calendar and the IB Account Window seems to report a different Current Initial Margin each day as the spread value changes, so it's hard for me to tell what it reported on the day of entry.

[greenspan76 302]

I looked at the 'Current Available Funds' on my account window before and after the trade. This is a speculative trade and not an SO trade, but I opened a spread for $1.50 credit and available funds decreased by the amount of the commission. I saw it calculated incorrectly on the "check margin" screen, which is why I looked to see that it had actually calculated correctly.

[equus 26]

17 minutes ago, greenspan76 said:

I looked at the 'Current Available Funds' on my account window before and after the trade. This is a speculative trade and not an SO trade, but I opened a spread for $1.50 credit and available funds decreased by the amount of the commission. I saw it calculated incorrectly on the "check margin" screen, which is why I looked to see that it had actually calculated correctly.

Oh well done getting that good price. Guess we'll see how long the low VIX lasts.

[equus 26]

41 minutes ago, greenspan76 said:

I looked at the 'Current Available Funds' on my account window before and after the trade. This is a speculative trade and not an SO trade, but I opened a spread for $1.50 credit and available funds decreased by the amount of the commission. I saw it calculated incorrectly on the "check margin" screen, which is why I looked to see that it had actually calculated correctly.

 

If the IB Check Margin facility is misreporting the margin, it raises an interesting question about the margin needed for rolling. If there's no bump in VIX in the next 8 trading days i will need to roll the short leg back a month. When Kim did his roll in May 2013, it was a net DEBIT which INCREASED the overall margin. But now Check Margin is showing such a roll will DECREASE margin by $109! 

Guess one should assume it will increase rather than decrease margin.

[Kim 7,513]

Yes, show margin in IB now shows different numbers for different spreads based on strikes and expirations. For call calendars they show margin of ZERO! Must be a mistake. 

[equus 26]

I have backtested the VIX Put Calendar back to September 2006, which is the beginning of the data in ONE/IB. When we have traded it in the past we have typically aimed for an entry price of -0.50 (credit) or better (i.e. more credit).

 

There are 1929 trading days. The table below shows how many of those days showed a particular price, or better, for the 2 month 16 PUT VIX CALENDAR. For example, the calendar showed a price of -1.00 or lower (i.e. even more negative) for 5.7% of the 1929 trading days.

 

CALENDAR PRICE / NUMBER OF TRADING DAYS / EXPRESSED AS A PCNT OF TOTAL TRADING DAYS

 

-0.50 / 335 / 17.4%
-0.75 / 217 / 11.2%
-1.00 / 109 / 5.7%
-1.25 / 44 / 2.3%
-1.50 / 20 / 1.0%
-1.75 / 5 / 0.26%
-2.00 / 3 / 0.16%
-2.25 / 1 / 0.05%

 

What is very interesting to emerge are the results for the 7 month period where VIX is extremely and persistently low, from start of Aug 2006 to  end of Feb 2007, averaging around 11.00. While the strategy performs well in other years, the backtesting shows that it is a real minefield to trade in this environment in 2006/07, and quite hard to avoid sustaining 50% & 75% losses.

 

During that low-volatility period the SPX was making all-time new highs. As I write the VIX Aug16/Oct18 16 PUT calendar is trading for around -1.80 and the SPX is making all time new highs.

Edited August 5, 2016 by equus

[equus 26]

 

Kim, I have question: suppose you enter one of these 2 month VIX 16 PUT calendars and there is no bump in VIX, so you roll the short leg (like you did twice in 2013) and end up with a 1 month calendar. Suppose then that the SPX relentlessly continues to make new highs and VIX stays persistently low. 

 

You are approaching the expiry of the already rolled short leg and paper losses are very high. What course of action might you then take?

 

[Kim 7,513]

2 minutes ago, equus said:

I have backtested the VIX Put Calendar back to September 2006, which is the beginning of the data in ONE/IB. When we have traded it in the past we have typically aimed for an entry price of -0.50 (credit) or better (i.e. more credit).

 

There are 1929 trading days. The table below shows how many of those days showed a particular price, or better, for the 2 month 16 PUT VIX CALENDAR. For example, the calendar showed a price of -1.00 or lower (i.e. even more negative) for 5.7% of the 1929 trading days.

 

CALENDAR PRICE / NUMBER OF TRADING DAYS / EXPRESSED AS A PCNT OF TOTAL TRADING DAYS

 

-0.50 / 335 / 17.4%
-0.75 / 217 / 11.2%
-1.00 / 109 / 5.7%
-1.25 / 44 / 2.3%
-1.50 / 20 / 1.0%
-1.75 / 5 / 0.26%
-2.00 / 3 / 0.16%
-2.25 / 1 / 0.05%

 

What is very interesting to emerge are the results for the 7 month period where VIX is extremely and persistently low, from start of Aug 2006 to  end of Feb 2007, averaging around 11.00. While the strategy performs well in other years, the backtesting shows that it is a real minefield to trade in this environment in 2006/07, and quite hard to avoid sustain 50% & 75% losses.

 

During that low-volatility period the SPX was making all-time new highs. As I write the VIX Aug16/Oct18 16 PUT calendar is trading for around -1.80 and the SPX is making all time new highs.

And we all know what happened next..

 

While those calendars should be profitable in the long term, the losses could be very heavy. For example, if you enter at -0.50, which makes capital requirement of $100, and it trades at -1.80 like now, that's 130% loss. Ouch..

[Kim 7,513]

2 minutes ago, equus said:

 

Kim, I have question: suppose you enter one of these 2 month VIX 16 PUT calendars and there is no bump in VIX, so you roll the short leg (like you did twice in 2013) and end up with a 1 month calendar. Suppose then that the SPX relentlessly continues to make new highs and VIX stays persistently low. 

 

You are approaching the expiry of the already rolled short leg and paper losses are very high. What course of action might you then take?

 

None.. and this is exactly the issue why I stopped trading them. I think that our calendar strangles offer better risk/reward, and we will resume the VXX diagonals after the split.