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2015
Volatility as an
Asset Class
Agnostic to the noise of the market
Use statistical analysis of behavioral
patterns in volatility product groups
SPX
30.00%
ASX200
20.00%
FTSE
Eurostoxx
10.00%
-15.00%
-10.00%
-5.00%
0.00%
0.00%
-10.00%
N225
5.00%
10.00%
15.00%
Linear (SPX)
Linear (ASX200)
-20.00%
Linear (FTSE)
-30.00%
Linear (Eurostoxx)
-40.00%
R = 0.5644
Linear (N225)
-50.00%
(Analysis 2007-2015, utilzing the nearest OTM options; buying second expiry
month holding over 1 calendar month of interest.)
(Analysis 2007-2015, utilzing the nearest OTM options; buying second expiry month holding over 1 calendar month of interest.)
Vol of Vol
VIX options are ultra sensitive to market inflexion points, more so than standard Vol
instruments (e.g. SPX puts)
The market overpays for insurance for the outlier events because of this sensitivity
(more on that later)
Systemic buying of options in itself produces significant drag on the portfolio of a
hedger because youre mostly losing
A trading mentality that separates the normal and the abnormal coupled with timing is
a better path
Vol of Vol is more tactical than strategic
VIX Index
<19
>19
42.6
75.2
90.0
175.0
247.2
496.0
-3.9
-5.0
89.1
87.8
0.17
0.15
Index/Term Structure
Low/Low
High/High
-20.6
138.7
90.0
190.0
475.0
261.5
-5.2
-3.6
85.3
91.6
-0.04
0.53
This analysis shows the P&L per contract by selling OTM calls in the front month up to 2 weeks till expiry, after which point selling the second month with positions held to expiry.
10
11
12
VX1
VX2 VX3
40.00
35.00
30.00
25.00
40.00-45.00
20.00
35.00-40.00
15.00
30.00-35.00
5.00
25.00-30.00
0.00
20.00-25.00
15.00-20.00
10.00-15.00
5.00-10.00
0.00-5.00
31-Aug-15
03-Aug-15
04-Aug-15
05-Aug-15
06-Aug-15
07-Aug-15
10-Aug-15
11-Aug-15
12-Aug-15
13-Aug-15
14-Aug-15
17-Aug-15
18-Aug-15
19-Aug-15
20-Aug-15
21-Aug-15
24-Aug-15
25-Aug-15
26-Aug-15
27-Aug-15
28-Aug-15
10.00
13
60
50
40
30
20
10
0
02-Jan-15
22-Jan-15
10-Feb-15
02-Mar-15
19-Mar-15
08-Apr-15
27-Apr-15
14-May-15
03-Jun-15
22-Jun-15
10-Jul-15
29-Jul-15
17-Aug-15
03-Sep-15
23-Sep-15
12-Oct-15
02-Jan-08
23-Jan-08
12-Feb-08
04-Mar-08
25-Mar-08
14-Apr-08
02-May-08
22-May-08
12-Jun-08
02-Jul-08
23-Jul-08
12-Aug-08
02-Sep-08
22-Sep-08
10-Oct-08
30-Oct-08
19-Nov-08
10-Dec-08
31-Dec-08
70
30
25
20
15
10
5
14
Compare the realized 1M vol of VXX (rolling 30-day VIX futures) with its
corresponding implied vol derived from its option price confirms similar
distribution of risk premium and the same median of 11% with a negative
skew of -1.2.
Compare the realized 1M vol of SPX with the VIX Index shows a more
centred distribution and lower risk premium of 4% with larger negative skew
of -2.3
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24/10/08 S&P gapped down -8.3% and closed the day down -5.1%.
VIX 67.8 VVIX 121 (starting from high vol levels)
24/08/15 S&P gapped down -5.4% and closed the day down -4.1%
VIX 28 VVIX 138 (starting from low vol levels)
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24/10/08 S&P gapped down -8.3% and closed the day down -5.1%.
VIX 67.8 VVIX 121 (starting from high vol levels)
24/08/15 S&P gapped down -5.4% and closed the day down -4.1%
VIX 28 VVIX 138 (starting from low vol levels)
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!The mean reverting nature of the product means that a long vol of
vol has to be traded
!Vol of Vol is hyper-sensitive to market inflexion points
!Systematic buying of volatility rarely beats selling in the simple
sense of win / loss
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Levitas Capital
About Us:
Levitas Capital was founded in 2013 as an Asset Manager and is based in Sydney, Australia. We currently service
clients in Australia, Singapore and Hong Kong. We are leading managers of volatility as an asset class with
a quantitative investment process and advanced risk management models. In addition we offer active portfolio
solutions. Interested investors can contact through our website: http://levitascapital.com.au/contact/
Disclaimer:
Levitas Capital is the trading name of Volatility Funds Management Pty Ltd (ACN: 165 110 476) that is a Corporate
Authorised Representative (CAR No. 448549) of HLK Group Pty Ltd (ACN: 161 284 500) which holds an Australian
Financial Services Licence (AFSL no. 435746).
Any information or advice contained in this presentation is general in nature and has been prepared without taking
into account your objectives, financial situation or needs. All securities and financial products or instruments
transactions involve risks. Please remember that the past performance results are not necessarily indicative of future
results. Trading derivatives carries a high level of risk to your capital and you should only trade with money you can
afford to lose. Trading derivatives may not be suitable for all investors, so please ensure that you fully understand the
risks involved, and seek independent advice if necessary.
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Levitas Capital
info@levitascapital.com.au
Level 5, 120 Sussex Street
Sydney NSW Australia
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