Is anyone else long this at the moment in their p.a.? feel the market will only get worse as VXX will increase in price
I can think of 10 different good ways to profit from a decline in the market, and VXX isn’t on the list. If you don’t have the knowledge and capital to trade variance swaps, you should stay away from anything vol related.
NakedPuts Wrote: ------------------------------------------------------- > I can think of 10 different good ways to profit > from a decline in the market, and VXX isn’t on the > list. > > If you don’t have the knowledge and capital to > trade variance swaps, you should stay away from > anything vol related. God, this statement just pwns the FU*K outta the op.
beware the Contango!! if you cant understand how that plays into VXX, you shouldn’t be owning it
points well taken. I don’t mind getting “owned” by peoples comments as long as I learn from it. Probably time to liquidate… Thanks
Didn’t mean to be so harsh. I certainly don’t have the knowledge or capital to trade variance swaps.
Can someone please elaborate here? I’m aware of the contango situation in commodity ETFs and how it can negatively impact returns. Is the situation similar?
the VXX bets on VIX futures not the current VIX. Thus when something’s in contango, you are contending with negative roll yield Cmon you smart CFA candidates!!
FrankArabia Wrote: ------------------------------------------------------- > Can someone please elaborate here? > > I’m aware of the contango situation in commodity > ETFs and how it can negatively impact returns. Is > the situation similar? Not really, because contango/backwardation in commodities or financials is due to more measurable and definable characteristics such as interest or storage/transportation costs whereas volatility is less well defined or measured. Expectations can change rapidly. The term structure can vary drastically and the months are more independent of each other than might be expected in other markets. To your point though, yes, you will be negatively/positively affected by rolling your contracts depending on where the back month trades - it’s just less easy to forecast than with commodities.
drs Wrote: ------------------------------------------------------- > the VXX bets on VIX futures not the current VIX. > Thus when something’s in contango, you are > contending with negative roll yield > > Cmon you smart CFA candidates!! Which is another point, I believe you introduce the aspect of making a play on the volatility of volatility - which ends up being a different bet than what you initially wanted to put on. You would have been better off going right into the market and buying/selling SP options.
You need to be an institutional investors and get an IB to sign an ISDA w/ you to trade variance swaps. No ones going to be able to do that, doesnt mean you shouldnt be able trade vol. These kind of arrogant & negative comments don’t really help anyone. Buying straddles/strangles can get expensive and difficult to manage, and your cost of time decay would be significant if youre trying to bet on vol in the long-end of the curve. VXZ has less of a backwardation/contango effect since they invest across 4 or 5 different months. Its not a bad option if thats what you’re trying to do. VXX works great for shorter term holding periods.
I wouldn’t hold onto VXX or VXZ for more than a week. As someone mentioned, VXX is an index on futures. The typical investor goes long VXX as a hedge to their portfolio if the market declines. Since more people are on the long side, their is a natural contango and negative roll yield. It will kill you if you hold onto the index for very long. Think of this, since the inception of VXX, the VIX index has dropped 43% while VXX has dropped 78%. It is possible to create a straight play on the VIX using SPY options, but it is a very complicated trade that requires continuous updating, or your delta goes through the roof.
job71188 Wrote: ------------------------------------------------------- > I wouldn’t hold onto VXX or VXZ for more than a > week. It looks like a nice thing to hedge and play around before important economic data announcements, but it’s not a long term investment. You can try making some low risk arbitrage profit from it by coupling it with S&P, just catch it at decent levels and wait like a tiger to attack.
So if you sell it, you’ll earn a nice roll yield, I guess, but be screwed if volatility suddenly spikes. For pure volatility exposure, buying and selling option collars sounds more sensible.