VXX a good buy at current levels?
- Thread starter mramaswamy1
- Start date
Yes, certainly noticed that yesterday...
But it's all about execution and infrastructure.
The following is the best advanced paper I've read in years...
And includes specific approaches to making money off VXX universe.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2043061
what i got out of this read is.. that these new instruments and their related trades in the futures has created a wild west in arbitrage between the less informed investor trying to hedge and invest in vol and the more informed arbitrageur taking advantage of the loss due to roll cost and as well the front running of skew created by the rolling itself! am i wrong?
"Moreover, for hedging the ETNs such large positions must be taken on VIX futures that the ETN market now leads the VIX futures that they are supposed to track."
" The result has been an evident increase in the volatility of VIX futures since 2009. If this increase in statistical volatility induces an increase in VIX futures implied volatility, a knock-on effect would be higher prices of VIX options whilst S&P options are unaffected."
unaffected S&P options .. which are the options that the freaking vix is based on.. and the futures, and their related ETF's are way over priced! due to all these ETF''s trading in the futures. .. i'm totally gonna try to map all this out in a spreadheet
" The result has been an evident increase in the volatility of VIX futures since 2009. If this increase in statistical volatility induces an increase in VIX futures implied volatility, a knock-on effect would be higher prices of VIX options whilst S&P options are unaffected."
unaffected S&P options .. which are the options that the freaking vix is based on.. and the futures, and their related ETF's are way over priced! due to all these ETF''s trading in the futures. .. i'm totally gonna try to map all this out in a spreadheet
That's more or less my take.
The Vol ETF niche is so arcane and misunderstood...
That just understanding the math nuances correctly...
And implementing straight-forward hedging strategies...
In highly targeted areas... can be worthwhile.
Selling Vol is where it's at 80-90% of the time...
But I do simple things like buy VXX bull call spreads...
To hedge against a BIG spike.
And then it gets back to execution and infrastructure.
And because the VIX ETFs wag the VIX futures...
And are virtually the only players in non-front month futures...
I'm gonna stick with trading ETFs for a few more months.
Quote from Nym:
+1
what I would like to have is something like:
y=f(x)
In order to understand how the index is computed once and for all. If the index contains different assets that can be replaced i would also like to know the algorithm that is use for doing that. These are stuff done from machines and machines understand only algorithms.
The more I look for that the less I am capable to find...
But maybe i am looking in the wrong place
Check out this essay: <a href="http://www.slcg.com/research.php?c=1b&i=71">"The VXX ETN and Volatility Exposure"</a>
It will help you better understand the index that the VXX is licensed to track.
this is exactly what we have been talking about.. obviously based on the term structure .. 2m-1m future roll over is going to cost the most and track the best.. This is the deal.. if you think your going to buy a etf that tracks a commidity that is mean revert on top of the fact that its derived from rolling futures at no cost your stupid... even if you just go buy vol in the actual index your gonna rot... hedging costs money!