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…
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…
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…
Tuesday, November 16, 2010
The VIX Portfolio Hedging (VXH) Strategy is being offered to the public for the first time, starting today. The strategy is available via professionally managed accounts, or available by subscription here. First-time visitors may want to start with the previous posts on this strategy: Introducing the VIX Portfolio Hedging (VXH) Strategy Why Conventional Hedging Methods Fail VIX Portfolio Hedging in a Crisis-Free World The Discreet Charm of the VXX ETN If your portfolio isn’t already protected against…
Thursday, October 28, 2010
This is the fourth post in the series I’m writing to introduce the VIX Portfolio Hedging (VXH) Strategy. To review: the purpose of the VXH Strategy is to provide cost-effective protection against tail risks and market crashes. The strategy takes positions in short-term VIX-based products, and varies its allocation to those positions in response to changes in the market environment. In this post, I discuss the use of the iPath S&P 500 VIX Short-Term Futures ETN…
Tuesday, October 12, 2010
This is the third post in the series I’m writing to introduce the VIX Portfolio Hedging (VXH) Strategy. The most important feature of the VXH strategy is that it offers protection against severe market declines. Almost equally important, however, is its performance during normal market environments. A hedging strategy that profits during a market crash is no help at all if it imposes heavy costs the rest of the time; this is one of the chief limitations of conventional…
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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