We’re Back VIX-ing

Screen shot 2010 11 27 at 10.02.32 AM Were Back VIX ing

Screen shot 2010 11 27 at 10.02.47 AM Were Back VIX ing

Hope everyone had a happy Thanksgiving. Since we last posted, Ireland launched Bristol Palin over their hostile border, while Cam Newton bailed North Korea’s banks out. Or something like that.

But hey, we do options here. And the big news? More VIX products!

Velocity Shares adding 6 new names to the trading VIX family..Bill Luby has the rundown. Some merely duplicate already existing volatility products. But we do get a few completely new ones.

To paraphrase Chris Berman, You’re With Me Leverage! Velocity brings us TVIX, basically a 2x VXX ETN. I don’t want to cast aspersions upon TVIX before actually seeing it in action, but it feels like the worst of all worlds as far as holding is concerned.

Short term VIX futures almost always trade at a premium to VIX and a positive slope between them, so thus cost a tracking ETN money on both futures erosion and rolls. A leveraged product loses money over time thanks to compounding IF the underlying instrument does not trend in one direction. The VIX itself rarely trends for long, it tends to mean revert.

That being said, its really doubling VXX and not VIX. And VXX generally does trend. Unfortunately it trends lower.

Consider this last stretch. Over the past 2 months, VIX has pretty much churned, while VXX has lost 1/3 of its value. I am not going to go back and calculate each day for TVIX. But suffice to say, it would have gotten slammed.

Basically TVIX might work fine as a short term trading vehicle. If you expect a VIX pop, TVIX will double your pop. Just don’t take this pup home with you too often. Or so it seems.


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.

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