Discussion in 'Stocks' started by hft_boy, May 21, 2012.

  1. hft_boy


    VXX is down 7.56% for the day and XIV is up 9.4% for the day. Something about XIV supposed to be being the inverse of VXX tells me that this is arbitrage opportunity ... please correct me if I'm being stupid.
  2. It's a nice thought.

    Good luck with the execution, though.
  3. hft_boy


    Haha. Actually I don't have a margin account at the moment so I was hoping some other traders could jump in on this. Execution doesn't seem terribly difficult, sell x dollar amount of VXX and sell x dollar amount of XIV, reset to same dollar amount every day at close until they converge.
  4. I have alot of experience with these. I would tell you that on days when they are moving alot (>5%) they will finish the day far from the direct inverse, as in one is +8% while one is -6.5%. Even on boring days it is rare to see them line up exactly.

    I wouldn't touch it with a ten foot pole. You could always get into that TVIX situation if they stop issuing shares, then all hell breaks loose.
  5. hft_boy


    Wasn't the TVIX situation a great opportunity? Basically -- if you know what you were doing -- all you had to do was wait for the price to converge to NAV?
  6. Yeah, but there was no telling how far from IV it would go, or how long it would take. Those who saw a 5% arb play at first would have gotten burned hard for a while.
  7. hft_boy


    Thanks for the insight. So, in your experience, is there money to be made arbing these? Or is it too easy to get burned? I did set up the trade in a paper account, so we'll see how it turns out.
  8. I would say too easy to get burned. Especially on a daily basis when anything can happen (when they can end far apart).

    If something like TVIX does happen again, and you have a large coffer, start playing the arb play with small amounts (using the other ETF as the IV), and add to it as it increases in size. But again, be careful. I'll never do it. Commissions and slippage + the chance that they end the day far apart makes it not worth it for me.

    Knock yourself out though.