Stock Market - Hedge Fund That Made 6,000% on VIX Jump Bets on Next Blow-Up |
- Hedge Fund That Made 6,000% on VIX Jump Bets on Next Blow-Up
- Dr pepper is giving a $100 dividend - Why?
- I don't understand why people aren't higher on Disney
- Stocks
- The Stock Market- Trade War
- Amazon Acquires Pill Pack, Time to Short CVS or WBA?
- Yield Curve Update
- Watch list suggestions?
- Need opinions on selling ETFs
- Lexagene (OTCQB: LXXGF) (TSX-V:LXG) Bear Run Persists Amidst Pathogen Detection Instrument Milestone
- Question: How will midterms will shape the market?
- Morning Highlights
- Chipotle CEO is fake news. SHORT
| Hedge Fund That Made 6,000% on VIX Jump Bets on Next Blow-Up Posted: 28 Jun 2018 09:33 AM PDT A hedge fund that reaped an outrageous gain in February's vol-mageddon is eyeing a fresh target. Houndstooth Capital Management LLC secured a 6,000 percent return from a bearish bet on an exchange-traded product tied to calm markets. Now, the $7.5 million fund sees trouble in an ETF designed to profit from the opposite -- turbulence in stocks. It's wagering technical forces in the volatility complex will help spur a swift return to stability in the wake of a blowout, undoing the leveraged product in its wake. It goes like this: Even though Houndstooth expects another surge in price swings, it's using out-of-the-money puts with near-term maturities to bet against the $413 million ProShares Ultra VIX Short-Term Futures ETF. UVXY, as it is known, is one of the most liquid, leveraged ETFs that profit from rising volatility. The theory is that after an initial spike there will be a snapback in vol that will decimate the product. "We're looking for areas where buying or selling volatility is mispriced by the market, or at least where we think there's a very good risk-reward trade-off," Lincoln Edwards, founder at Houndstooth, said in an interview. "There's a risk that another massive VIX spike could destroy UVXY in a single day." Tucker Hewes, a spokesman for ProShares at Hewes Communications, declined to comment. At $70,000 the trade is modest, but it highlights the contentious issue of whether securities such as UVXY can exert an outsize pull on the very contracts they track, exacerbating their own volatility in the process. Hot Summer Volatility investing has boomed in recent years as ETPs offered cheap and liquid ways for professional money managers and retail investors to punt on the burgeoning asset class. As Wall Street warns of a "hot" summer full of risk, and a more normal regime for volatility after two placid years, many traders are betting on bigger price swings in the latter half of the year. And that's how Houndstooth made its spectacular February return. The Austin, Texas-based firm bought put options on the ProShares Short VIX Short-Term Futures ETF, or SVXY, thinking that an upward move in the Cboe Volatility Index would shake sellers out of their torpor. Sure enough, the gauge staged a record-one day spike, sending the ETF plummeting 83 percent -- and handing the fund its best-ever first quarter with a double-digit gain. Houndstooth reckons it has a keen eye for technical risks in the underbelly of the volatility complex. Since the VIX isn't tradable, many products hold futures contracts on the gauge. Given their size, some participants say they can exert a large pull on the price of the assets they track, underscored by the spectacular collapse of ETNs linked to calm markets in February. Both long and short products buy and sell futures contracts on a daily basis to maintain their desired degree of exposure to implied equity volatility. That means a large one-way move in the VIX can dramatically increase the number of contracts they need to buy -- challenging liquidity and potentially driving the price of futures higher, according to Edwards. Cboe Global Markets Inc. didn't immediately respond to an email request seeking comment. It has recently outlined changes to the monthly auction for the VIX settlement. Scenarios For the Houndstooth strategy to pay off, VIX futures need to lose two-thirds of their value in a single day. That, in theory, would be enough to send the price of the 1.5-times leveraged UVXY to zero. "Even if VIX futures gained 200 percent or even 10,000 percent in a single day, a one-day decline of 66 percent makes UVXY worth $0 regardless of how high it climbed," Edwards said. Of course, the grip ETFs assert on VIX futures likely diminished after February, as products either closed or shrank, while several ProShares ETFs reduced leverage, including UVXY, curbing their need to rebalance after sharp moves. And the scenario didn't play out after the VIX's record spike on Feb. 5. The next day, the volatility gauge slumped by one-fifth -- only enough to send UVXY down by a third for the day. Still, buying put options on the ETF rather than shorting it allows Houndstooth to limit potential losses on the trade, and there are a few scenarios that could lead to its success. Under one, the VIX spikes from its current level to 40. The next day, as panic eases, the gauge knifes back down, its movements exacerbated by long buyers rushing to cover positions, and by volatility products flooding the futures market to rebalance holdings. In another, the VIX could surge on bad-news speculation and then quickly reverse, producing a large enough intraday spike for the bet to pay off. Alternatively, the gauge could gradually climb higher -- only to deflate suddenly if favorable news emerges. Edwards believes volatility is poised to move higher as November's U.S. congressional elections approach. "We'll also see a third interest-rate hike, which will spark much more volatility than what we're seeing now. Political uncertainty in Europe will continue causing major fits of volatility. Expect to see the VIX over 30 at least one more time this year," he said. The Houndstooth investor concedes that a 6,000 percent return on the strategy is a tail scenario -- but one "that's massively underappreciated and underpriced." 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| Dr pepper is giving a $100 dividend - Why? Posted: 28 Jun 2018 04:58 PM PDT I know they are doing in the wake of a merger, but why would they structure it this way? I have not been able to find any other cases of things like this before. What benefit do they gain? Why not just turn them into more shares of the combined company instead of offering out a huge amount of cash and seriously reducing their market cap? [link] [comments]  |
| I don't understand why people aren't higher on Disney Posted: 27 Jun 2018 08:22 PM PDT I understand Disney stock value has been stagnant for a few years. I'm predicting a lot of change though. I'm betting they finish acquiring Fox, they get majority ownership of Hulu, and other popular IPs. Looking at the streaming potential alone: content is king. If Disney pulls off a streaming service and can offer all of their content on it (House of Mouse stuff, Marvel, Star Wars, Pixar, ESPN stuff) then they would have the streaming platform with the best content. They could stream new release movies direct to consumer. They could stream Monday Night Football (ESPN holds the right to this broadcast) straight to consumer, no cable required. Netflix has a higher market cap than Disney. Disney can do what Netflix is doing now, but better, in probably two years. Once the other major content providers develop their own streaming platforms what's going to be left on Netflix? You're telling me the corpse of House of Cards and Stranger Things is going to be a bigger draw than what Disney can offer? No way. I love that Netflix produces their own content but theyre literally 70 years behind Disney on content library. Why is the market not reacting to Disneys potential? Do they not think Disney will acquire Hulu? I realize the Disney acquisition of FOX is a lot more than Hulu and some IP, but that's literally all I'm focusing on and it should still be more than enough to send Disney's value way way up. What gives? What am I not appreciating? [link] [comments]  |
| Posted: 28 Jun 2018 07:42 PM PDT |
| Posted: 28 Jun 2018 02:02 PM PDT What impacts will the trade war have on international markets and our domestic stock market? Do you think that this event will lead our economy into a bearish market? [link] [comments]  |
| Amazon Acquires Pill Pack, Time to Short CVS or WBA? Posted: 28 Jun 2018 06:28 AM PDT CNBC: Amazon plans to acquire online pharmacy PillPack, the companies announced Thursday. CNBC has reported on Amazon's push into the pharmacy industry. The deal will give Amazon an immediate platform into the business of selling drugs. Shares of drugstore chains Walgreens Boots Alliance, CVS Health and Rite Aid all tanked on the news. PillPack packages organize and deliver drugs. It sends consumers packages with the specific number of medications they're supposed to take at specific times. It boasts a "full-service" pharmacy, meaning its customer service team is available 24/7. There are two things I see here. One, Amazon has a really long runway. If there is a product that can be delivered to you they will find a way. Two, is it time to either bail out of the pharmacy stocks and or short them? Will they become the next victim of Amazon? What do you think? [link] [comments]  |
| Posted: 27 Jun 2018 08:32 PM PDT Back in April we posted our first article on the inverted interest rate curve and the correlations with the 2001 and 2008 recessions. Based upon the rate of decent in the 10-YR to 2-YR spread, a rate-curve inversion was graphically predicted to likely occur in the year 2019. Here is a more detailed progression of the lower and upper bounds for the predicted rate curve inversion date: As you may note, the upper and lower bound dates contradicted each other until November of 2016. Since July of 2016, the predicted lower bound (early) date has been stable at late 2018. Since December of 2016, the predicted upper bound (late) date has been stable at late 2019. Obviously, investors are likely more concerned about the early date for the rate conversion. The good news is that the S&P500 will likely peak some time after the rate curve inverts. Using the 10-YR to 2-YR spread, this lag time ranged between 6 and 16 months for the 2001 and 2008 recessions, respectively. Based upon our observations, this difference in lag time between the rate curve inversion and the market top appears to be related to the depth of the rate curve inversion. DTRS will continue to follow the progression of the yield curve trends. Conclusion: With the Fed actively raising interest rates and continuing to flattening the rate curve, be watchful of the yield curve as we wrap-up 2018. If the curve inverts, start planning your market exit point. Chart can be viewed at https://dividendtotalreturn.net/yield-curve-update/ [link] [comments]  |
| Posted: 28 Jun 2018 07:03 AM PDT Hey, what stocks do you recommend I have on my watch list? [link] [comments]  |
| Posted: 28 Jun 2018 06:06 AM PDT I have to sell all of my stocks and ETFs by late July and the market has begun to steadily decrease. Should I sell out now or try to hold out until then? The only reason I ask is because I'm having an operation in August that will cost a lot, and will require that I pull almost all of my money from my current investments. I know that patience and research is the key when you're in the stock market, but time is of the essence. Any advice? [link] [comments]  |
| Lexagene (OTCQB: LXXGF) (TSX-V:LXG) Bear Run Persists Amidst Pathogen Detection Instrument Milestone Posted: 28 Jun 2018 08:14 AM PDT Lexagene has made remarkable strides in the development of its pathogen detection technology. Designed for healthcare providers and food safety officers, the technology has the potential to strengthen the company's prospects in the industry. [link] [comments]  |
| Question: How will midterms will shape the market? Posted: 28 Jun 2018 05:28 AM PDT What parts of the market do you all see getting a bump or going into decline if/when the Democrats take control of Congress from the November elections? Are there certain sectors that do better or worse when democrats are in control? Although I know trump still has veto power. [link] [comments]  |
| Posted: 28 Jun 2018 05:26 AM PDT
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| Chipotle CEO is fake news. SHORT Posted: 28 Jun 2018 07:49 AM PDT |
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