Vixxing it up
Murray Stahl called the VIX a "logical trading tool" — here's how to own it, without it owning you.
“ … Trading is about anticipating changes in human behaviour.. ultimately, if you think of it in that sense, the VIX is a very logical trading tool for one who wishes to engage in that activity. I myself do not wish to do so but, if I did, I would choose the VIX.”
—Murray Stahl
I have a number of unusual habits. One of which is that I like to read and then re-read, through various collections of shareholders’ letters and call transcripts from investors I admire. The above quote is from one such source.
It’s no exaggeration to say that Murray was (and remains) a hero to me. The admiration I have for him extended far beyond investment philosophy, I was particularly struck by how much patience and kindness he had when dealing with questions from shareholders and the public whereas I, in contrast, would often be yelling at my computer that the questioner should read the report and have their answer!
There’s always something new that strikes me while revising the reaerch writings and compendia of this wizard and a few weeks ago I read the above quote and was rather surprised — Murray, in favour of, and almost favouring the idea of being long the VIX!
Hence I began to review the charts of the VIX and its options chain and think about which circumstances might be more favourable to being long the VIX as a relatively simple way to have insurance in a regular portfolio or, an anti-fragile speculation to profit handsomely from a spike in volatility, or even its reversion to mean.
Here are two simple trades to profit that are completely uncorrelated to the broad market, in fact they’re inversely correlated - let’s explore.
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The Trades
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