Selling out hedges

Start trading
Updated: 19 February 2020

We have seen some rather extreme price movement over past 48 hours.

My take for the past month has been to start accumulating protection, mainly via long VIX positions, but also via other types of hedges. The entire month of November was basically a slow dripping torture for people long premium. Theta bleed has been awful for most, but to be honest the SPX did move to the upside, providing some gamma hedging to meet the theta “checks”.

The hedge was mainly as an overall insurance for the overall portfolio as premium had gotten so incredibly cheap. Lows in VIX only a few days ago were in the 11.6 area. VIX sub 12 is usually not expensive if you have a bit of staying power.

VIX spiked from sub 12 to almost 18 in a few days. We have seen even more extreme moves, but this is a big move. Unless there is a “paradigm” shift, spikes in VIX like this one usually tends to revert.

Headline risk around the China/US deal or no deal continues to be a hard risk to manage. VIX at these levels has produced a very nice gain and I have been selling out protection hedges. VIX at these levels is not cheap nor expensive.

I have flattened out VIX longs and will wait for better opportunities in the volatility world.