Oh yes, clearly backwardation is on and will be boosting the long vol etps, but it seems to be more pronounced in vxx than tvix or uvxy. And as I look, most of the up move is in afterhours activity. Perhaps it's just the influence of traders bidding up the price, rather than iPath controlling pricing. I am so unclear on how much traders affect pricing compared to the ETP issuer in these tracking ETPs. As for daily roll, there is an interesting article by Vance Harwood making a good case that daily roll is not the issue. "The cost of contango--it's not the daily roll." https://sixfigureinvesting.com/2016/09/the-cost-of-contango-its-not-the-daily-roll/
Thanks Maverick. I've got excel - what else might I need to test various price shocks on these things? What's still throwing me for a loop is when I read just the general summary (off yahoo finance) of say SVXY and XIV on the one hand, and UVXY and TVIX on the other hand (along with others), is that the former say they are supposed to return inverse (-1x) of the S&P VIX short-term futures index, and the latter 2x of the S&P short-term futures index. So, they are supposed to (on a daily basis, I recognize holding at least the long VIX etfs long will drag over time) do the exact opposite of each other (with UVXY and TVIX doing 2x). So, let's look at today. First question is, what did the S&P VIX short-term futures index do today? Is that reported anywhere? I'm having a hard time finding it. Secondly, whatever it did today, it would seem that either UVXY and TVIX on the one hand, or SVXY and XIV on the other hand, were far, far off the mark, given that they both went down by huge amounts. How is this so if they are supposed to be opposite the very same index? Thanks again!
I've read that article before and don't agree with it. For one, it's not that the VIX etf's are penalizing you vs the VX futures, the drag exists in the futures as well as that is where the drag is coming from. In other words, forget you are long VXX and just buy the VX futures and roll them every day. Over time you will lose a fortune as you should because the market has to charge you for the optionality. It's not free although I wish it was of course. It is possible for there to be drift of course where the demand for the ETF can exceed the actual futures. The Arb guys will keep it close but the arb guys know where the futures "should be" so the ETF's could drift. Again, the mistake he is making in my opinion is that it's not the ETFs fault for the decay. The decay is in the futures and the ETFs are simply replicating it. This is true for the commodity ETFs as well. Natural Gas is especially bad during the summer months as the market has very steep contango. One other thing to note, there is an alpha parameter which is just a decay function which gets smaller and wider depending on price. So there are periods when M1 and M2 can move almost in lock step (delta of 1), but this is rare and does not last. You can see this graphically simply by charting the VX switches on your charting platform of choice.
Honestly, I really don't know these too well...I know enough to be dangerous, and not enough to be safe. I would (and have) told people to avoid these products because the continuous money stream you get from them means there's a huge risk you're not properly considering--but hindsight is a bit useless at this point. But this point has really stuck with me to see the people who lost millions who should have known better. ....as I've side-stepped your question thus far, let's try to answer: I'm not quite sure I understand what you're asking, but are you asking if the derivatives lead the underlying? I've honestly wondered about this with the VIX because it has no intrinsic asset value underlying it, and market forces during a panic could snowball into a cash exodus that would require the fund manager to send market orders to an illiquid market that would then produce market forces that move the underlying--and creating a feedback loop that pushes prices of the derivative lower, which in turn pushes the underlying lower, which then leads derivative prices lower. So, I really don't know; I have my suspicions; and I'm eagerly awaiting this to be dissected academically to see. Most of my ETN knowledge was picked up yesterday after the market closed and XIV started dumping. I follow the VIX options market a bit more closely. But I use them differently than the ETNs would try to--using ratio spreads to pick up the early part of a shock down move, while limiting risk and eliminating the loss of sensitivity due to an increasing market--and I expect to pay for this protection. Honestly, my recommendation to anyone would be the same advice I follow. I don't understand this well enough, the reward side of the equation looks huge, and so too must the risk side. And lack of understanding + high risk = stay the heck away. I wouldn't mind seeing the VIX derivatives go away completely. I have my doubts that even professionals are considering the risk of these appropriately. I get the feeling that the assumption was that the 80% point was something unprecedented and they believed this lack of precedent to be a hard floor (and in fact below their perceived floor) of the ETN product. The reality was that this had a greater than 100% loss exposure to it (which I presume that in excess of 100% was retained by CS), but it's presentation as an ETN meant that it looked like 0 was a floor. So even if this risk is disclosed to and understood by the individual purchasing, I don't believe that the (lower) perception of this risk lines up with the (higher) rational understanding of it. Add that to my concerns that derivatives activity could affect the underlying (which anecdotally may have been confirmed yesterday)...
Thanks Maverick. On that page, I see a link to a pricing page, and on that page I see VIX futures, but I'm not seeing the price of the VIX short-term index off hand - am I just missing it? Thanks!
What is the VIX short term index? You mean the cash VIX? BTW, the cash VIX has no relationship on the VX futures or the ETFs until settlement. It's simply a calculation of the settlement formula on the SPX options.
A short ETF or ETN is inherently leveraged. When the underlying rises, it must buy back some shorts to prevent the exposure from being more negative than -100%. I think XIV and SVXY were crushed because their own anticipated buying demand for VIX futures pushed the VIX futures to artificially high levels. TVIX is double long VIX futures, and if it got too big, on day where VIX futures were already down it could add to downward pressure on VIX futures on the close. VIX futures cannot go below zero, so there is a limit to the downward pressure. VXX is not leveraged, so I don't think it has the same risks as XIV, SVXY, or TVIX. Of course it has negative expectancy, but that is a different issue.
Thanks beerntrading! I follow you. What I was trying to get at with this question is really what I am asking Maverick when I said: "So, let's look at today. First question is, what did the S&P VIX short-term futures index do today? Is that reported anywhere? I'm having a hard time finding it. Secondly, whatever it did today, it would seem that either UVXY and TVIX on the one hand, or SVXY and XIV on the other hand, were far, far off the mark, given that they both went down by huge amounts. How is this so if they are supposed to be opposite the very same index? " Just trying to understand these better. Oh, and I'm following your advice - lost a bit of money yesterday on these things, not going in again at all until I understand them better (if then!!!) Thanks!
Sorry Maverick, I left out the word "futures". VIX short term futures index (you can see it referenced here https://finance.yahoo.com/quote/TVIX?p=TVIX in the fund summary on the right). Got you on cash VIX having no relationship to the VIX futures until settlement. Thanks!