I have been developing a model for the following volatility products based on /VX Futures (VXX, UVXY, VXZ). Since these products are strickly composed of the /VX futures and contango or backwardation of the futures I created a model that will give you the exact values of these products based on the /VX value. I have projected the value of the all product from Jan expiry until 2018. Since these products are based on math I know that the model is correct. Has anyone else create a similar model?
Unless you can predict the term structure evolution for 2 years which is impossible I do not think the model is useful for trading. If you are assuming the term structure is not changing it is very straightforward to calculate the daily decay/gain in the volatility ETPs.
No one can predict that...the usefulness of the model comes in the range. You can calculate the value of VXX for example in March 2016 expiry if the front month future goes down to 21 or up 25. Knowing the range of the futures you can execute spreads or condors or whatever strategy you prefer with confidence around these values. Since this is math the model works and is accurate the art is understanding the behavior of F1 and F2 futures in the case of VXX Volatility always settles.
Are you looking for the arbitrage driven range for VXX? Might be useful if you're trying to sell options on VXX/VIX, I wouldn't clash with the Titan and attempt to arb it though. I have however thought that maybe (very outside possibility) there might be some edge for someone fast enough to leg into this trade at an advantage just because the relative tick sizes are high. I haven't put much thought into the idea though.
Since VIX is a implied vol number in the current month and VXX are based off of futures in the front and second month which will create contango or backwardation you won't be able to have a arb opportunity.
I'm not suggesting it's feasible, but hypothetically it is possible. VX futures are tradable and so is VXX. aVX1 + bVX2 = cVXX.
your going down the wrong road... just buy vix puts when there is a hard spike in vol... best risk reward imo... thinking that you will find something because there is some complex derivation of a crappy etf is wrong imo... plus who wants to hold a product that has some kind of varying exposure to the vix curve... dumb... why not just take a position with vix options... buy vix puts or calls... one way or another your going to be calling direction on something... bite the freaking bullet
The top chart is the VIX the bottom chart is VXX. The VXX has lost >95% of its value. Which one would you rather short?
I think tactically shorting VXX is a good strategy, especially for retail traders. I don't think anyone would deny there is edge there, my concern is more that 5% spikes are very common. I'm all for trading vola though.