Barclays stops doing VXX?

[lindq]

Thoughts?

The VIX derivative ETFs/ETNs have been picking up bad press lately. That always leaves open the possibility of fed intervention in the guise of protecting investors.

If anything did happen, chances are it would not be overnight. And in any event, it is best not to ever count on one strategy or one instrument for planning your future.

Here today, gone tomorrow.

 

[xandman]

"Rip-offs"?

There is a cost for vehicles which include leverage... same as if you borrow from your broker and have to have to pay "margin interest".... or paying option premiums... such investments are generally not designed for "long term, buy-and-hold".

If you feel you're being hosed trading 2X-3X ETFs, then you're expectations are wrong.

Sorry, Scat. I recall you mentioning awhile back how you made some serious money on a 2x-3x strategy (for yourself and your investors). You seem to be quite biased. I am not even going google the ETF management fees on these products which should be in single digit basis points.

 

[Scataphagos]

Sorry, Scat. I recall you mentioning awhile back how you made some serious money on a 2x-3x strategy. You seem to be quite biased. I am not even going google the ETF management fees on these products.

You "recall" incorrectly. I never said such a thing.

Regardless of the fees and expenses, leveraged funds will outperform the underlying in both the short term and long in a trending market. But due to "expenses of leverage", not exactly to the 2X/3X leverage parameter.

Look... Leverage is a GREAT thing when you get it right, but it's a killer when you get it wrong. If you play on leverage, you have to be prepared for that.

In my entire trading career, I've rarely been more leveraged than 1.25x of trading capital. Likely an important factor in my still being around.

 

[xandman]

You "recall" incorrectly. I never said such a thing.

Regardless of the fees and expenses, leveraged funds will outperform the underlying in both the short term and long. But due to "expenses of leverage", not exactly to the 2X/3X leverage parameter.

Well then, if you have never run a leveraged fund strategy for other people: I am completely mistaken.

I may have to revise my understanding of leveraged ETFs as well.

 

[Scataphagos]

Well then, if you have never run a leveraged fund strategy for other people: I am completely mistaken.

I may have to revise my understanding of leveraged ETFs as well.

No worries. I never ran "leveraged" anything for other people. My 15-minutes of fame came from running a mutual fund timing service... and that was before the days of leveraged index funds... all trades based upon "price TA"... same as now for me and my family money.

"Leveraged ETFs" are easy to understand. The fund managers have to pay some premium for leveraged exposure.. and those "cost premiums" in whatever form are an expense, which detract from the "target" performance ... that's all.

You can run up a comparo chart of some index vs. 2x of the same index since 2009. The leveraged fund performance will be greater than the index, but due to the "costs" of acquiring leverage, somewhat less than "2X".

 

[xandman]

No worries. I never ran "leveraged" anything for other people. My 15-minutes of fame came from running a mutual fund timing service... and that was before the days of leveraged index funds... all trades based upon "price TA"... same as now for me and my family money.

"Leveraged ETFs" are easy to understand. The fund managers have to pay some premium for leveraged exposure.. and those "cost premiums" in whatever form are an expense, which detract from the "target" performance ... that's all.

You can run up a comparo chart of some index vs. 2x of the same index since 2009. The leveraged fund performance will be greater than the index, but due to the "costs" of acquiring leverage, somewhat less than "2X".

That's what I was remembering!(vaguely). I remember that era and did copy cat trades with the leaders. We weren't on internet time. Did you make Hulbert's Digest?

Regarding leverage, surely, nothing beats the basis and transaction cost of a futures contract for trades of this size. Are these savings really passed on to the investor? Or, do we pay the equivalent cost of capital of retail margin rates? You know there are funny things in the equities world such as soft dollars.

 

[Scataphagos]

That's what I was remembering!(vaguely). I remember that era and did copy cat trades with the leaders. We weren't on internet time. Did you make Hulbert's Digest?

Regarding leverage, surely, nothing beats the basis and transaction cost of a futures contract for trades of this size. Are these savings really passed on to the investor? Or, do we pay the equivalent cost of capital of retail margin rates? You know there are funny things in the equities world such as soft dollars.

Not Hulbert's but rather Steve Shellin's "Money Research Newsletter". (Hulbert was all about "newsletter writer recommendations", whether trades taken or not. Money Research was all about "actual trades taken" with audited results.)*


Difficult to say "what's fair"? And are the mangers hosing investors to a degree with management fees and expenses... ?? Still, the leveraged funds outperform the non-leveraged in a trending market.

* One might think "recommendations" and "trades taken" = same. But what if the "rec" says, "Buy/Sell @ ______ with a 50% stop?" What if the newsletter subscriber doesn't care to "risk 50%" and doesn't take the trade"? Therefore, lots of "missed trades"... some regretfully, some thankfully.

IOW... a "recommendations" track record is sort of like "paper trading" compared to "actual trades taken and with audited results".

 

[haroldg]

That headwind

The levered-ETF "headwind" is an urban legend.

leverage is all too easy to get from other products

Not for those without futures accounts, either by choice or by mandate.

The reason I like the VXX even though it has the common ETP weaknesses is that volatility trades require several option contracts to structure the trade. Thus, it provides some value-add

What "options contracts"? VXX is just a Vix-futures passthrough.

 

[comagnum]

'If investors really want to place bets on equity market volatility or use them as hedges, the VIX-related ETF and ETN products are acceptable but highly-flawed instruments. They certainly have a strong convenience aspect to them, as they trade like any other stock. That said, investors looking to really play the volatility game should consider actual VIX options and futures, as well as more advanced options strategies like straddles and strangles on the S&P 500.'

http://www.investopedia.com/stock-analysis/2012/4-ways-to-trade-the-vix-vxx-vxz-tvix-xxv0504.aspx

 

[SunTrader]

If regulation is the biggest threat, that should be minimized for the next 4 years at least..

Proof is in the pudding.

Trumpie talks a good game. When he isn't flip flopping.