VIX products were relatively muted yesterday relative to equities because the VIX itself was relatively quiet. Front month futures were bidding close to (albeit slightly under) the spot which was basically flat. So there was nothing to move either VXX or XIV yesterday (no VIX move, no large convergence between spot/f1+f2 since they were bidding close to each other already). Today (tuesday) the VIX was down 21% and VXX on average will move around 60% of the VIX on the downside (and 40% of each upside move although this is very rough and depends on contango/backwardation/roll yield, etc). Again, when trying to identify why VIX products are moving (or not moving) consider the following: 1) What is the VIX doing. VIX products take their cues from VIX futures which are obviously derived from the Vix spot. Take a look at the VIX spot, first. 2) Consider the relation of the VIX futures in question (either the front two for VXX/XIV or the mid month futures for VXZ and others) to the spot. For example. If the VIX was flat, but futures were maintaining a large premium over the spot, there will be a general tendency for VXX to fall or XIV to rise in that situation. Obviously you would expect the spot to respond to SPY, but they are not perfectly coordinated. I dont recall the r2 off the top of my head, but its not as high as you would expect. Obviously this leads to situations where SPY and the VIX are 'off' and dont appear to move in tandem.
Hi VTS, I'm just wondering... if instead of buying XIV or VXX, you would sell the other... sell VXX or XIV... would that make a difference in your analysis? Because I think buying VXX or XIV gives you a negative return in general. I mean, if you would buy them both, they return negative while you would initially think it is a full hedge...
Thanks for your comments. Empirically, the returns of XIV and VXX are more highly correlated to changes in VXV, the 3-month version of VIX, than to VIX, which is plausible because they depend on the market's expectation of VIX in the future.