Some investors noticed a moment near the close of trading today during which VXX briefly was negative on the day. Here are the last couple days of VXX trading, plotted in 5-minute bars. Source: TD Ameritrade Those same investors probably clicked over to the CFE’s website and noticed that the VIX futures closed higher on the day. More than one person claimed that this was an indication of some kind of horrible tracking error or failure on the…
Tuesday, March 20, 2012
The theory that volatility ETPs are somehow going to have adverse consequences on the market has been a popular theme for a month or two now at least. I’ve tried to show why this this idea doesn’t make sense twice; when it comes to zombie ideas, sometimes you have to just keep trying. If you want to claim that the increased volume in volatility ETPs is causing the VIX tail to wag the SPX dog, you owe the world the…
Thursday, March 8, 2012
The halt in TVIX share issuance and the fact that, on some days, VIX-based ETF/ETN rebalancing accounts for 90% of VIX futures volume has caused some pretty wild speculation. I’ve been too busy this week to write a proper rebuttal, but here are some points that will help you steer clear of all the needless hand-wringing: The rolling of contracts in VXX and similar products is in no way “entirely game-able,” for the same reason that the term…
Wednesday, February 29, 2012
VelocityShares Daily 2X VIX Short-term ETN (TVIX), an increasingly popular volatility product, is an exchange traded note (ETN) provided by Credit Suisse that seeks to provide two times the daily return of the S&P Short Term VIX Futures Index (SPVXSTR), the same index tracked by the popular iPath S&P 500 VIX Short-Term Futures ETN (VXX). SPVXSTR maintains positions in first and second month VIX futures in a ratio weighted to provide constant exposure at a one-month horizon. TVIX…
Tuesday, January 10, 2012
The media narrative at the moment is that U.S. investors are happy to ignore all things European for as long as modestly positive domestic economic news keeps trickling out. The headlines today about stocks being up “on” news from Alcoa were silly enough,* but this does seem to be a real theme – slight reductions in the odds of a 2012 recession mean it’s time to pile into stocks, apparently. The smarter parts of the market qua options and volatility traders have…
Thursday, December 1, 2011
In the embedded video, I look at some interesting volatility phenomena in USO options, SPY volatility skew, and VIX and VSTOXX futures. Here are the trade ideas mentioned: Short USO implied volatility / long USO realized vol: on the view that USO options are richly priced relative to likely future USO realized vol, you can sell straddles, strangles, or iron condors here and delta hedge with the underlying shares to capture the difference between current IV…
Wednesday, November 9, 2011
We’ve never offered a discount before on the VIX Portfolio Hedging (VXH) Strategy, and the coupon code at the end of this post is only valid through the end of the week. I don’t know what’s going to happen in the future, but I know that the cost of hedging downside risk is relatively cheap here, and that some investors have taken an “all clear” attitude prematurely. If your portfolio didn’t weather the storms of August and September easily, you…
Tuesday, September 20, 2011
I’ve already posted some performance details on the VXH strategy, but I wanted to wait for the official report from the accountant to discuss August returns. The numbers are in, and VXH returned 167% in August. The strategy is up another 10% or so in September, and has returned more than 50% since inception. I sent the following note to clients earlier this week, and you can read it here for more details: VIX Portfolio Hedging (VXH) Program Performance Review…
Monday, August 29, 2011
Volatility is the only asset class that makes sense for hedging an equity portfolio, since it protects against the actual thing that investors are worried about. Fixed income, commodities, gold, etc. all have their neat quirks, but their value as portfolio hedges is orthogonal, at best. Investors love smooth, positive returns most of all and love sharp, jagged declines the least. Long volatility strategies like VXH produce outsized gains during those sharp, jagged periods of high volatility, making them the…
Friday, August 19, 2011
Here are the VIX futures at 3PM ET on Friday the 19th. click to enlarge A few things stand out to me: Backwardation forever: I don’t have all my data at hand, so I don’t know where recent turmoil ranks historically in terms of time that the VIX futures have spent in backwardation. My guess is that this isn’t the all-time record, but that it is a contender. That five point difference between September and November is incredibly…
Jared Woodard is a registered commodity trading advisor who specializes in trading volatility as an asset class. With over a decade of experience trading options, futures ... Read More
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Thursday, March 22, 2012
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