VIX Vs. VXX: A Love Story

• Posted by Adam Warner
• on July 28th, 2010

Well maybe not.

Chart via TradeMonster. If you’re looking for an excellent full service options broker, click thru and take a spin.

Anyway, here’s a comp. of VIX (the green and red candles) vs. VXX (I guess that’s magenta) over the past year. And as you can see it’s……rather ugly if you invested in VXX as a way to invest in volatility. Volatility as an asset class sux!

Unless of course you embarked on that strategy more recently. Here’s the same comp., but over the past 3 month’s

Not so bad any more, they just about mimic each other. Volatility as an asset class rules!

The truth of course is somewhere in between. The 9 month stretch between late July 09 and late April 10 saw generally declining VIX. VXX has a short trading history, but clearly that’s not exactly best case. The last 3 month’s saw a VIX explosion and decline, but stubbornly large VIX futures premiums as we’ve noted 10K times or so.

Going forward? Who knows. I would guess the premiums erode. In fact they’ve already started eroding. That does not feel good for VXX, but actually seems worse for VIX futures themselves. So as ridiculous as this sounds, I am toying with long VXX (via short puts) vs. long further out VIX puts.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus