Your best way to play VXX is to just short a small position and hold until the instrument is closed down, periodically adding when the size becomes irrelevant in your portfolio. Never held it and sold the options the night of Trump winning. VXX is a day trader if that. I beg to differ.
VXX will always trend down for all the reasons stated in the above article. I consider spikes in VIX a gift from the market gods. Sell and Hold VXX for sure. Does that indicate anything? I am long with 20 contracts at that strike price. Not sure if I should get out or wait to see if there is small pop up on the VXX. Signals on market are quite mixed right now. An open interest is just an open option contract that is not closed yet: I write an option and you buy it from me — this constitutes an open interest.
I rarely ever go long VXX and never during times of serious contango like we are experiencing presently.
I would be willing to be the open interest is ppl looking to sell calls. Short VXX on VIX spikes and then sit tight, short more when your position gets too small, and watch the proverbial paint dry. Since it is a money maker for Barclays they will figure out a way to extend it, either by amending it, or opening up a new set of notes. I want to write a call credit spread against VXX but my hesitation is that a reverse split is coming soon.
Any idea what would happen if I had spread open? On a reverse split the strikes are reduced 4X in this case , so that the net value stays the same.
Liquidity of the adjusted strikes might not be that good so it might make sense to exit before the split happens—there is advance notice of when they will happen. Seems pretty straight forward. What am I missing? VXX decays much like an option, so even though volatility will eventually increase from its current levels your losses due to the decay process will likely consume any profits you might get.
The VXX tracks futures prices. If volatility is anticipated to rise in the future, then this will already be reflected in the VIX futures and hence in the VXX. More technically speaking futures prices are semi martingales. And I have another doubt. Do you thing that knowing it we could have an idea about which are Barclays future expected lost value of this ETN?
Barclays does not control that. If I supose the same investing amount every day long XIV vs. I understand that the two ways to trade have to be inversely similar, but in reality if you choose to short the VXX the profit substantially more than buying the XIV, even taking account for the expenses to borrow the shares. Thanks, again, in advance.
Your site is simply fantastic but it remains small compared with your kindness to help. The mechanisms at play here are related to the compounding that is inherent to the operation of the daily resetting leveraged funds -1X and 2x. The compounding tends to erode the value of leveraged funds if the volatility of the underlying securities is high, and boosts them if the underlying security goes into a strong supporting trend.
Investor outflow cannot decrease the number of outstanding notes since you have to sell your notes to another investor. The best way to think about the VXX is like a corporate bond whos value is index linked to to the short term VIX futures index.
Hi again, I missed that you can redeem early so your are right Vance, sorry. If you look at my other recent post you will see that it is hard to redeem for a private investor. Also if you look at the net assets of the VXX at yahoo finance you can see that it is 1. If you want I can email you my spread sheet which has collected the information of all VXX issues.
Are you not trading the issued notes directly? This value will vary by hundreds of millions because of price changes in the VXX. The NAV yesterday April 28th was Barclays has issued new notes on 27 occasions since inception and raised I have put all the issue dates, size of the issues and the VXX value at the issue dates in a spreadsheet if you are interested. I see that index like dow are moving 3 digits almost every other day….
Thanks Vance I checked on the spreads this morning and penny to the red cent! I appreciate your help and great article. I am wondering if this is normal or is it just because I am looking at it after a volatile day.
Source was Yahoo currently bid is Just wondering if this is natural. Shorting VXX is popular. However shorting the right spike can be tricky—volatility often has a triple spike before a correction is over.
I feel that VIX is much more appropriate for the kind of security people are looking for, as it follows properly SNP? Thanks for the article! People talk like they do, but in reality they are buying a volatility future or exchange traded product—neither of which track the VIX very well. Thank you very much! I just bought some TVIX earlier today, do you expect any tendency from it? Vance, what am I missing here?
The risk is volatility spikes. If you get greedy you can lose a lot of money in a hurry. I actually found my answer. It basically looks like a sure thing. What I meant is where I could get my hands on the theoretical VXX time series, of course — not the futures data. Nice article Vance! Do you know where I could get my hands on that data?
VIX , a widely followed options-based barometer of expected near-term volatility for stocks. VXX follows an index that tracks the price of two near-term VIX futures and seeks to maintain a constant one-month exposure to volatility by repeatedly selling first-month futures to buy second-month contracts. Under normal conditions, first-month VIX futures are priced lower than second-month contracts as uncertainty about how stocks will fare leads traders to boost the volatility embedded in further-out expirations.
That is a problem for VXX, which essentially is constantly selling the relatively cheaper first-month contract and buying the more expensive second-month contract.
This constant erosion in value has caused VXX to hemorrhage money like few other products. But during times of market stress, such as now, first-month contracts become even more pricy than contracts with expirations further out. So far in the front part of the curve has been in backwardation only five trading days out of at second quarter end and those instances have been very short lived. In the VIX curve was in contango every day until late December when the Fiscal Cliff situation resulted in a spike in volatility and VIX going to a premium relative to the futures contracts for a day or two.
The problem has been this sort of price action has been very rare for almost a couple of years. VXX offers a good short-term trading vehicle to gain exposure to a potential spike in volatility. Over the long term VXX will experience some price deterioration, but in times of increased market volatility VXX is structured to give long holders the benefit of the increase in volatility.
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By Scott Rutt. By TheStreet Staff. By Vidhi Choudhary.
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