What does it mean when we have one of the biggest short positions in the VIX ever? Let's dig into the Commitment of Traders Report (COT) report data with another Hands-On Market Analysis with Python.
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Hello YouTube Friends, great show today - let's talk VIX shorts... A recent article on bloombergc.om stated that hedge funds are short the VIX at levels never seen since 2008.
Hedge Funds Are Shorting the VIX at a Rate Never Seen Before in Bloomberg
"Large speculators, mostly hedge funds, were net short about 178,000 VIX futures contracts on April 23, the largest such position on record, weekly CFTC data that dates back to 2004 show."
So, the CFTC, the Commodity Futures Trading Commission, puts out a report called the Commitment of Traders Report, known as COT for short, which has been out since the 60s on a variety of futures contracts. In short, it's a report that shows open positions in an aggregated format for all future contracts traded by at least 20 people.
Since 2004, they started doing it for the VIX contracts.
And we're going to take a look at this data and chart it.
So, welcome to another market analysis hands-on with Python and to the ViralML Show, my name is Manuel Amunategui. I am the author of a few books including a new one that will be out at the end of the month "The Little Book of Fundamental Indicators" where I share my favorite hands-on market analysis fundamental indicators and data sets. Things like the S&P500, unemployment, real estate, CPI, VIX, etc. Please signup for my newsletter to get early access to my material. Subscribe to the channel - and give it a big thumbs up, pretty please!
We're going to download the data on Quandl, Commitment of Traders - VIX FUTURES (E)
It reports commercial and non-commercial positions, basically, those that speculate are considered non-com, while those that hedge professionally like a bank are considered commercial - but the line is blurry between commercial and non-commercial.
We'll look at the non-commercial numbers as we're after the psychology of tomorrow's markets and not systematic financial engineering.
So this is deep. If you think about what is the S&P 500, its the 500 top us companies, with some 80% of the total equity market value traded in the United States, 30% of their revenue comes from the outside the US - its the economic heartbeat of the world! But it is a synthetic product, as there is no such thing as an actual S&P5000 producing an S&P500 product. Well, there is as ETFs etc but its a derivative of 500 other companies.
Then you have the VIX, a derived product, which tracks the option prices on the 30-day implied volatility on the options of the S&P 500. To keep this simple, whenever the options get volatile (i.e. erratic or with larger swings than normal), the VIX goes up. So you have a derived product of an aggregated index. And now we go even deeper, we look at the open interest of the VIX futures - basically the big contracts of the S&P 500.
So this gets pretty sophisticated, somebody who is just bullish ion the market will buy S&P 500 ETFs or buy call options...