This ETN Could Be Ideal If The Market Continues To Drift (VXZ, VXX, SPY)

“This week on Twitter, Elwalvador made a great point about how well the iPath S&P 500 VIX Mid-Term Futures ETN (NYSE:VXZ) has preformed, and that it’s actually moving more than iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) lately. To refresh, VXX tracks a rolling 30-day VIX future, while (NYSE:VXZ) tracks VIX futures four to seven months out. (NYSE:VXZ) doesn’t have the roll and decaying futures premium problems of (NYSE:VXX), but it also won’t track the VIX itself as well, because futures that far out just don’t move that fast. At least they shouldn’t. So what the heck is going on? Well, as we know, VIX futures premiums remain persistently high,” Adam Warner Reports From Investor Place.

Here’s how they looked on Thursday’s close:

SPX Volatility

Warner goes on to say, “Basically there is a 6-point premium out everywhere. And, as you can see, there’s no real difference anywhere four to seven months out, which means no expense to (NYSE:VXZ) to roll any or every day. And that’s pretty typical. (NYSE:VXX), on the other hand, basically has to roll September to October every day to maintain the 30-day duration, and that goes $3 against it. So I think we can explain away that relative performance graph. Quite simply, VIX has drifted, near-month futures have had a perpetual steep upward slope, and (NYSE:VXX) gets caught both ways.”

“Meanwhile, assumptions of a higher VIX out in time never go away. It’s almost a perfect setup for (NYSE:VXZ). And that’s great if you own (NYSE:VXZ) as a portfolio hedge. It’s actually higher while the SPDR S&P 500 (NYSE:SPY) is pretty close to unchanged, and VIX and (NYSE:VXX) are down. The issue, though, is what happens if the market crashes. In that case, if you own (NYSE:VXZ) as a portfolio hedge (or speculative tool), it likely disappoints. Those VIX futures out four to seven months already price in a sizable uptick in volatility. If the VIX goes into the 40s, they may only lift a few points from here. But (NYSE:VXZ) does work perfectly in a low-octane drift like we have now. And I think that scenario is more likely than a meltdown when everyone expects a meltdown,” Warner Reports.

Take a look at our individual categories for each ETF for more details and great content.  We have put together some more details on each ETF below along with the link to each ETF’s category.

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.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *