Market Monday: Profiting from the VIX Index

Who: Ibex Investors

What: Betting on volatility in the markets.

When: February 9, 2018

Why: Record calm stock markets became volatile very fast.

My Thoughts

Must represent my city of Denver, Co and spotlight Ibex Investors. The small hedge fund based out of the mile-high city cashed in to the tune of 17.5 million on a 200K bet.

The bet was linked to VIX futures, the exact mechanics were not disclosed. The VIX index or volatility index is often referred to as the “fear gauge”. The index will spike in times of uncertainty or mass change in the market.

The VIX index was extremely stable and low throughout 2017. The bet from the small hedge fund was that the market would receive a spike of volatility in the future.

When markets started to move south with great velocity, relatively speaking to the past couple years, the bet paid off.

Everyone who knew about the trade was giving the firm a hard time. The firm understood the risks and realized that the trade was mispriced and ultimately capitalized.

The best part of the story…in true Colorado fashion they went skiing to celebrate!

I enjoy readings stories like this but am not a big fan of derivatives personally. If you use derivatives as part of your overall strategy share below! Make sure to let us know what positions you are currently holding.

Way to go Ibex Investors!

What Are Your Thoughts?
  1. Do you swing for the fences with a portion of your portfolio?
  2. What level of volatility do you predict in the next couple of months?
  3. What is the biggest profit you have scored on a gut call investment?

Spread The Wealth!

20 Comments on “Market Monday: Profiting from the VIX Index”

  1. I read about trading the VIX or “fear gauge” a while ago but have not really looked into the small details. I remember reading lots about the “trader” known as “50 cents” who kept piling on volumes trading the VIX options last year and how they kept rolling over their positions after expiry and racking up losses. A couple days ago, I did read that with the current market rout, they are now about $400 million in the green when marked to market. Interesting stuff!

    1. Yes! I read the same story.

      It is always interesting to hear about these stories after the fact. Always makes you wonder though how many of the contracts expire worthless that they buy. Those stories don’t make print.

  2. I’ve never done derivatives or anything close to that. I don’t even use a margin account. Although the stock market is never a sure thing, speculative investments would always keep me up at night. But wow, what a return!

    1. Pretty amazing right!

      I have never used margin either. In college I signed up for a margin account in order to short stocks. Never pulled the trigger which is a good thing.

      If you have to borrow a ton of money to invest you most likely should not be investing…

      Options I think can have their place. Although I do not think they are necessary for successful investing.

  3. Used to swing for the fences in my younger investing days. As you can imagine, some hit well and others missed badly. Mixed investments now with a LT growth focus.

    Thank you for the Denver shout out. And for sharing your pic with readers!

    1. Pretty interesting huh? I think I liked it even more then most being from Denver.

      I think we will continue to see some volatility this year but it is actually a good thing. Stay with the game plan.

    1. Not necessarily unlimited loss. Depends on the product.

      Derivatives is just a loss term for a variety of instruments. No need to dive into learning as they are mostly engineered to help businesses hedge and wall street blow up portfolios.

      Boglehead for sure!

  4. Damn Millennial,

    I just saw you put up a beard-less picture…I was expecting to see your avatar! Just kidding, man 🙂

    That’s awesome, the profit that Ibex Investors made – kinda reminds me of Christian Bale’s character in “The Big Short”.

    In terms of my own investing, I’ve dabbled in options, but didn’t really make much money. Now, I just do index funds and some cryptocurrencies. I’ve concluded that I don’t have the expertise to consistently beat the market, which even professionals mostly fail at. So I’m sticking with index funds for the time being.

    Colorado is one of my favorite states, and skiing one of my favorite sports! I think my wife and I may be the only Puerto Ricans/Miamians in existence who prefer skiing to the beach 🙂

    Cheers,
    Miguel

    1. I will have to grow a nice beard when I am FI and no longer going into my W-2 job!

      I am glad you said that it totally reminds me of that movie on a small scale. I would say Christian Bale’s character was the guy that sold the investment firm the deal.

      Over time it is extremely challenging to outperform the market.

      That is awesome you guys love to ski! Have to get out here and go more.

  5. Some people bet big and risked a lot. There was a post on Reddit for a guy who had put his life savings of over 1 million on XIV and when it dropped from ~$90 to ~$7.00 overnight he lost it all and now owes his broker money. These instruments are highly volatile. Is the risk/reward worth it?

    1. Ouch that is brutal. Never understood the all or nothing approach into one big bet.

      Easier to place these bets with other peoples money at the institutional level. They are charging clients a pretty penny for their investing wisdom so they better outperform somehow.

  6. 1. Do you swing for the fences with a portion of your portfolio?

    Partly by selling covered calls for overvalued own stocks and selling puts when market dips

    2. What level of volatility do you predict in the next couple of months?

    Surely higher than it was before 🙂

    3. What is the biggest profit you have scored on a gut call investment?

    Probably word play – difficult to understand for foreigners 😉

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