Shorting volatility is like playing a carnival game
From Dan Ferris, Editor, Extreme Value:
If Poor Henry had come into the carnival game knowing it was rigged against him, I bet his behavior would have been different.
The news story at the time says he went through the $300 in his pocket in minutes… But he didn’t stop there…
The short VIX trade is a “Thanksgiving turkey” trade. The Thanksgiving turkey gets fatter and fatter… the population of turkeys around him is growing and growing… things looks great… he’s extrapolating out into the future, “At this rate, I’m going to be a millionaire in no time.
Then Thanksgiving happens… and all the turkeys get killed. That’s what happened with the VIX trade.
Just like Poor Henry, they didn’t understand the game they were playing…
Crux note: You can get Dan’s latest trading updates… and learn how experienced investors see today’s market… for FREE on his new Extreme Value YouTube channel. Check it out right here.
Dan is also active on Twitter. You can follow him at @dferris1961.