*****Official VIX Exchange Traded Products thread******

Discussion in 'ETFs' started by Victory5, Nov 8, 2015.

  1. Victory5


    If you understand the VIX curve you will never need to trade stocks again


    VIX futures have been trading since March 26th, 2004 and VIX ETPs have emerged on the trading scene post 2008 meltdown. Many have exploded in popularity since then with both their derivatives and the underlying maintaing solid liquidity in recent years.

    Good resources (will be updated as we go along)

    http://vixcentral.com/ --> fantastic visual representation of VIX futures, allows easily visualization of futures in relation to spot, helps explain where and why VIX products are moving.

    http://cfe.cboe.com/data/historicaldata.aspx --> historical VIX futures data from CBOE

    http://us.spindices.com/indices/strategy/sp-500-vix-short-term-index-mcap --> VIX short term index (essentially what the products below attempt to track in some capacity)

    http://investing.kuchita.com/2011/08/16/how-the-vxx-is-calculated-and-why-backwardation-amplfies-it/ --> how to calculate VXX price (long read but worth it)

    http://investing.kuchita.com/2011/08/21/vxx-data-since-vix-futures-avilable-march-2003/ --> VXX modeled back to 2004

    The List*​
    *I recognize this does not cover ever VIX product, but these are the most traded at the moment

    iPath S&P 500 VIX ST Futures ETN
    -Longs front month VIX futures, will move in the same direction as the VIX
    -Average volume (3 months): 76,181,500
    -Highly liquid options market

    VelocityShares Daily Inverse VIX ST ETN
    -Shorts front month VIX futures, will move inverse to the VIX

    -Average volume (3 months): 31,496,300
    - No options

    VelocityShares Daily 2x VIX ST ETN
    -2x leverage short VIX
    -Avg volume (3 months): 20,196,500
    - No options


    ProShares Ultra VIX Short-Term Futures
    -2x leverage short VIX
    -Average volume (3 months): 19,784,300

    - liquid options market

    ProShares Short VIX Short-Term Futures
    -Shorts front month VIX futures, will move inverse to the VIX
    -Average volume (3 months):5,398,910
    -least liquid options market (of VIX products)


    For differences on some of the above products that seem to do the same things....see the following.

    lindq and d08 like this.
  2. shooter


  3. Sig


    Its an interesting article. I do think it's cherry picking its data to make its point, for example they're saying that on a day equal to the highest VIX move in history, the ETPs would require 95% of the average volume of the underlying futures to rebalance. Common rookie error or purposeful obfuscation to use average volume on the least "average" day of the year. You can bet VIX futures volume will be many times larger than average volume on a high volatility day, let alone the highest volatility day in history!
    Otherwise the point is part of the valid issue of positive feedback loops in the entire ETP universe but especially in areas where the size of the ETP come close to or exceed the size of the underlying market they track.
  4. Victory5


    Remember though that these products derive their value from a balance of front month VIX futures not the spot.....

    In a market downturn or 1 day 'crash' we can expect futures to move a significant amount but not nearly as much as the spot. This past August we had the largest weekly VIX spike in history in % terms as vol went from the low teens to a peak of 50 or so the morning when the Dow was down 1000 points. Of course over that same time, September and October VIX spiked into the mid 20s reflecting possible periods of heightened volatility.

    Yet despite this we were not even close to a termination event which would require VIX futures to move 80% (80%!!!!) on a single day. Consider that this summer on August 19th, Sept/Oct VIX were bidding around 16 in slight contango.....the VIX peaked on the 24th after a massive % increase from the previous week, but Sept VIX was only bidding 25 and Oct VIX 22.

    That was just under a 60% move in VIX futures over a week during one of the largest % spikes in the VIX spot in history.

    Think about that and then think about what it would take to get an 80% move in a single day: it's not impossible, but it may as well be. You would probably need the global financial market to completely melt down in which case losing money in an inverse volatility ETN is probably the least of your worries anyway.
  5. Victory5


  6. Victory5


    Spot now bidding on par with Nov VIX, contango between Nov-Dec has been reduced to 3%: if we stay at these levels when Dec rotates through, dont expect much in the way of a contango based decline in VXX. Likely any move downward will have to come from the spot falling instead (if we continue to be broadly bearish on vol).
  7. Victory5


  8. VTS


    You should be wary using simulated data back to 2004 to draw any meaningful conclusions on where these products are going in the future. While it's true the VXX existed a little earlier than the XIV, it's volume didn't make up any significant percent of volatility and option trading until the rest of the products hit the market and started accounting for hundreds of millions of dollars in transactions like we see now.

    Anything before about 2012 is almost totally irrelevant. If the volume we are seeing today existed back then, those prices you are quoting in your simulated backtest wouldn't have been what they were. Market participants' hedging and trading activity would have changed, which would have changed the values of the vix futures and vix options market, which would have changed the values of the VXX or XIV or any of the other products that derive their price based on futures.

    This is the reason that people who have developed trading systems based on those useless garbage simulated back tests have gotten blown out of the water in the last 3 years. They don't understand why it's happening to them. Their backtests seem brilliant and stable going all the way back to 2004.

    But in live trading in the past few years, garbage returns. Why? Because of non existent simulated data being the basis of their forward looking trading system.
  9. Victory5


    Very good point, indeed VIX futures volume has picked up tremendously since 2011. While I agree that it's difficult to rely on the specifics of 2004-2009 reanalysis data, it does show broader trends that can be useful, specifically how these volatility products would have reacted (approximately) to a 2008 type event.
  10. NKVI>NH


    omg, the microstructures of vix term change on a yrly basis..i would not trust data older than 1.5 yrs...don't think you can so easily game the patterns. its harder than it looks.
    #10     Nov 10, 2015