Home > What Some Investors Don’t Know About The VIX ETNs (VXX, VXZ)
Print

What Some Investors Don’t Know About The VIX ETNs (VXX, VXZ)

June 24th, 2010

“You could argue that the 18mo chart for $VXX shows things were super-crazy Jan 2009 and that we are too complacent right now. The iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) is a derivative product that tracks a rolling 30-day CBOE Volatility Index (VIX) future. It is purely a trading vehicle.  As we have noted, if the VIX is in contango (an upward sloping futures curve), then (NYSE:VXX) will lose modest money every day rolling from the shorter-term future to the longer (and higher priced) one. And VIX is virtually always in contango, which almost guarantees that (NYSE:VXX) will underperform the VIX itself over time,” Adam Warner Reports From Options Zone.

Warner goes on to say, “”In other words, let’s say the VIX was at 40 and VXX was also at 40 at some time in the past. Now, over the course of time, the VIX declines to 20, but rebounds back to 40. VXX will almost certainly be lower than 40 on that second trip back to 40. That’s thanks to the contango drag from constantly rolling to higher futures. Here’s a chart of the VIX over the past year.”

VIX Chart


And here’s VXX:

VXX Chart

“In late January, the VIX spiked to 27.5, and VXX peaked at about 32. When VIX returned to 27 again in the early May explosion, VXX was about 29. But currently, with the VIX again near 27, VXX is “only” 27. This is due to the fact that contango gradually erodes VXX. Quite simply, VXX is a derivative product. It’s a nice trading vehicle, but absolute levels are utterly meaningless. The VIX itself is often difficult to compare to readings of the not-so-recent past. VXX is impossible to compare, so don’t even try,” Warner Reports.

We have also put together some more details on the iPath S&P 500 VIX Mid-Term Futures Note (NYSE:VXZ) and the iPath S&P 500 VIX Short-Term Futures Note (NYSE:VXX) below:

Chart foriPath S&P 500 VIX Mid-Term Futures ETN (VXZ)

iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) Visit Our VXX Category: HERE 

The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.

Chart foriPath S&P 500 VIX Short-Term Futures ETN (VXX)

iPath S&P 500 VIX Mid-Term Futures ETN (NYSE:VXZ) Visit Our VXZ Category: HERE 

The investment seeks to replicate, net of expenses, the S&P 500 VIX Mid-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts and reflects the implied volatility of the S&P 500 Index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the fourth month VIX futures contract into the seventh month VIX futures contract. 

Chart foriPath S&P 500 VIX Mid-Term Futures ETN (VXZ)


NYSE:VXX, NYSE:VXZ


 

Tags: , , ,

Facebook Comments

Comments



  1. No comments yet.
  1. No trackbacks yet.




Copyright 2009-2014 WBC Media, LLC