Profitsee – Future Economic Surivival

Divinations in Forex, Commodities and Economic Patterns

VIX in Feburary Housing’s impact on EUR/USD – Loss/Cover Play


This was a 3278/3250 -12 noon. (Long EUR/USD at 3278 short 3250 @ 93) I took on at 9am. In play today was today’s Feb. Housing figures and Event Risk – the capture of British sailors by Iran and rising oil, all adding fuel to the fire, no pun intended. Naturally all this would lead to a >7 pip VIX risk, even for my most modest clients. Even a non-event risk like the Federal Reserve last week announcing they there would be no change in rates caused a >7 pip VIX shot.

Loss/Cover Play:  My initial stop loss on this trade was -25 pips (3253), and my bine close I set at 63 (+30 pips). This is one of those classic stop-loss covers. If EUR/USD stopped out, it would of breached the bine close for the cover-stop-loss. However, the VIX event horizon more than likely would have covered a $7 loss on the 12 noon 3250. Eventually my cash got closed out at 3340 on this trade by a tiny trailing stop I kept moving up, for a net pip gain of +50 in 1 hour.

A simple buy-into-VIX straddle on both of these at 9:30am could have also been employed, but the same leverage was closely met by the cash + 1-sided bine strategy employed. I attached today’s graph just to show the bine’s (green lines) and the price going through these levels. As you can observe, the straddle would have been successful given the propensity for the price to climb through the 3300.

The one advantage the VIX straddle has over cash is the delta. VIX was priced, but the VIX surge was not. Thus the change in OTM bines per pip from, say 3280 – 3310 would have been around 50% greater than most cash – leveraged accounts of the same amount. For example, from 10-15 to 60 $ per contract as it went ITM, even with 2 hours until expiry.

Today’s VIX was pretty much skewed. Apparently the Street was caught off-guard with the February’s Single Home Sales. Even CNBC noted the impact February’s weather may have played on this figure.


Filed under: stop-loss,

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