VXX a good buy at current levels?
- Thread starter mramaswamy1
- Start date
Could you elaborate on the last statement a bit please?
What is the best option for a retail trader looking to capitalize on a pop in VIX?
Yes, but when you're long VXX and similar ETNs, you're facing not only the futures declining toward spot VIX but also the rollover penalty. Take the 2 week period before the front month futures expire. You may find that holding the front-month futures during this time period will result in a decline of 10%. Holding VXX may see a decline of more than 10%, because they are not only seeing a decline of their futures holdings but are continuously selling front month futures and buying the same number of back month futures contracts - which cost 8 to 15% more than the front month contracts - thus decreasing the overall value of their holdings.
There is no real difference in roll-down of the first futures to spot vs "roll-over" of the replicated constant maturity futures which is VXX. For an equivalent weighted vega position, you are going to be locking the same loss/gain over a long enough holding period. Some simple analysis of roll-down and roll-over should be enough to convince yourself of it
Off the top of my head, I could think of some trades in VXX options or some relative value trades in ETF vs ETF. It's more suitable for an off-line discussion, I don't want to pollute this thread.
You are just saying VIX is in steep contango...
The only time you see backwardation is in deep crisis with the VIX above 30 or 40...
So VXX is pretty much never a good buy.
If you must go long...
Buy VXZ (mid term futures) or VXZ options...
The contango is much more limited.
If you are right the pop will be somewhat muted...
But if you are wrong you will save that 10%/month roll yield...
Overall a much better choice for retail.
Best of all is an Automated VIX ETN pairs or basket strategy...
But that is beyond the scope of this thread...
Google away.
Anything but vix products unless you want to "try" make vix a full time job.
Not really. I think if you are an experienced vol trader, you can easily dedicate part of your portfolio to vix (especially if you have experience with volatility derivatives) and keep doing other things at the same time.
I can name a whole bunch of reasons to be long VXX vs some other forms of convexity. As I said before, naked outright risk premium is almost never a good buy nor a good sell.
Lots of ifs in that statement....let these guys jump in, I could use the liquidity
I also would go as far to say so called experienced guys have little idea how the curve really behaves.
This is useful for understanding VXX, etc...
Download the free Excel workbook that goes back to 2004...
And learn how it works...
(I'm not connected to this, it's some guy from Brazil):
http://investing.kuchita.com/2011/08/21/vxx-data-since-vix-futures-avilable-march-2003/
Download the free Excel workbook that goes back to 2004...
And learn how it works...
(I'm not connected to this, it's some guy from Brazil):
http://investing.kuchita.com/2011/08/21/vxx-data-since-vix-futures-avilable-march-2003/