Flow Traders Investment Competition: The Sell-Off Continues

Going long on equities in combination with shorting the VIX has been a popular strategy for a while now, but that trading combination seems to have unwinded itself. A massive sell-off caused the VIX index to spike from 13.47 on the 1st of February to 37.52 4 days later, and it has remained high since. The equities sell-off also continued after the weekend leading the S&P500 and DOW index to drop again by significant amounts.

However, towards the end of this week markets seem to have stabilised. Since earnings overall were very good, this indicates that the sell-off of equities should not have any dangerous implications beyond hurting some unlucky overleveraged investors. Share prices still fell though, so again most groups end up with a loss.

Not everyone was unfortunate enough to see their portfolio decline, however. Floryn actually managed to make a profit through their Flow Traders investment. Flow Traders’ share rose by approximately 50% during the week as they managed to have their best quarter ever so far, despite the fact that we are not even halfway through the quarter. They already made more profits since 2018 began than they did in their previous record quarter, the 3rd quarter of 2015.

Another group that did well is Negotium Novum. They decided to stick to cash for this week, causing them to beat the market and attain a number one position in the competition. CFQ could have perhaps profited from Flow Traders as they also invested in them, however they were short in Snapchat, which actually rose by 40% over the week, yielding them a loss.

Back to the VIX. A recurring pattern seems to be that whenever there is a sell-off, the VIX spikes only to return to normal levels shortly after. This makes sense as it represents market volatility, but since the pattern is so predictable it presents a very obvious and seemingly safe investment opportunity. You could consider buying it during a normal period, only to then sell and short it during a market crash. The risk here lies in the possibility of a much more significant market crash occurring just after the initial sell-off, but historically that never happened in a short time span. Even in 2007-2008, it took about a year for one VIX spike to occur after the last one, so consider this strategy.

For all Tesla enthusiasts, Elon Musk can now proudly boast that he managed to launch one of his cars into space on his own rocket. This probably says more about SpaceX than Tesla (which you cannot invest in since it is private), but hey, there is something to be said about shooting sports cars into space via your own missile.

Written by Xander Gelink