Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Now's Not the Time for Bearish VXX Moves

By

It's looked exactly this "cheap" 27 different times along the ride down.

PrintPRINT
I got asked on Twitter whether I think VXX is a buy.

Short answer? No.

Long answer? More complicated.

VXX tracks a perpetual 30-day VIX future. I'm not 100% certain how they create VXX, but my presumption is someone along the chain has to literally rebalance futures/swaps each day. And if futures are at a premium -- as they are now -- that feels like a recipe to underperform by the same principle that United States Oil (USO) can't keep up with actual crude. It's different in that USO rolls once per cycle, while this must do some every day.

In addition, VIX futures have a premium to the actual VIX. Though that has persisted for a few months now, there's no particular reason that should continue. As has been demonstrated numerous times, volatility remains modestly overpriced to realized volatility. It's less so now that the VIX has drifted, but all that means is the VIX is closer to fair now -- not cheap, per se.

Finally, take a look at the chart below. Why exactly should this be the moment to bottom-fish VXX? It's looked exactly this "cheap" 27 different times along the ride down. I understand the myriad reasons to do something bearish: We've moved too far too fast, the real economy stinks, it's time to lock in gains, yada yada yada. I'm a short-term trader, so I'd rather miss the top and do bearish things later on, but I can't argue with someone with a different time frame, different goals, et. al. But there are much better ways to make bearish bets, in my opinion -- like simply writing calls or buying puts against winners.



Register For Minyanville's Holiday Festivus '09 Here
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE