Friday Wrap-Up: VIX, the Grexit, and a Prop Bet Postmortem

Some final thoughts on VIX, plus a look back at Super Bowl prop bets

Feb 6, 2015 at 8:22 AM
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It's Friday! So, time for some random thoughts and notes. If you love CBOE Volatility Index (VIX) (and academic papers about the VIX) … you're in luck! As part of our Royal VIX Twitter Rumble this week, my Twitter friend John Henry Iucker (an alum of the greatest school in America) passes along this piece entitled The VIX Futures Basis: Evidence and Trading Strategies.

It's been a big week for market bulls -- and a good case-in-point why actual news often means less than the timing of the news. I don't follow every tweak in Greece, but I know the news this week was not considered bullish. Two weeks ago, our market would have tanked, and we'd have 4,000 articles about why the "Grexit" (I hate that word) would somehow impact us all unfavorably.

This week, though? Greece … whatever. Buy, Mortimer, buy! Maybe we've already discounted it, but that seems like a lazy explanation. This story has come and gone for a couple years now, and it's more likely we care about it when a headline pops up in the middle of one of our other regularly scheduled "fear bubbles."

Bad week for floor traders in Chicago, though. Via CNBC:

"CME Group says it will close most of its futures trading pits in Chicago and New York City by July 2, 2015.

It will maintain its options trading pit and the S&P 500 futures market.

'Equity index futures pits and the DJIA ($10) and NASDAQ-100 options pits will close following the expiration of the June 2015 contract on June 19, 2015,' the company said in a release."

It's amazing they held on even this long. As a former floor trader, I always feel bad when this happens, but unfortunately there's not much need for physical floors anymore. Something like 1% of all CME trades now take place on a floor. So, here's hoping everyone losing their jobs because of this lands on their feet somewhere else in the industry.

But hey, maybe the day when we can "trade" sports-related futures isn't far off. A few months ago, I would have estimated the date as sometime around the 12th of Never. Now, it looks like there's some momentum for ending "prohibition," thanks to NBA Commissioner Adam Silver getting out in front of the issue. Literally. He's on the cover of ESPN Magazine this month, and it's titled "The Gambling Issue."

Speaking of which, we went 2-1 in our Super Bowl prop bet recommendations last week -- and that was lucky, considering a late Seahawks touchdown flips the "team that scores first wins game" prop to a loser. It's a 1-unit win (wahoo!), on the assumption we played to win 1 unit on the negatively priced props (both of which won) and risked 1 unit on the positive price one (the field goals came in way under).

I went back and looked at how two strategies worked if you played every touchdown- and scoring-related prop and every player performance prop (i.e., Tom Brady touchdown passes, et. al.) offered on 5Dimes. Strategy No. 1 was if you blindly played every "negative" market. In some cases, both sides were negative, so I looked at only the more negative side. Strategy No. 2 is if you blindly played all "under" and "no" props. I went with the working theory that demand is for positive markets (e.g., bet $100 to win $200) and "overs" and "will happens" -- thus, the prices are skewed.

The results were interesting. The "under and no" category was a net loser, down 4.64 units. Patriot player props were the main culprit. The "negative" strategy worked much better, up 11.3 units. And it worked across the board. Going "negative" on every player prop yielded 3.4 units. Playing that way on scoring props won 7.2 units, and touchdown props won 0.7.

Now realistically, it's tough to play each and every one of them. Would you risk 10 units on the game going to overtime to win 1 unit? Probably not, but the odds are in your favor. It's more about the mindset, in my honest opinion. Know that the odds are tilted a certain way … and pick your spots accordingly.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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