VXX is unquestionably dysfunctional

Discussion in 'ETFs' started by brettman9, Jan 21, 2010.

  1. I just can't figure out what's wrong with it. But an overlay of VXX on VIX short-term futures very clearly shows it is not at all even approaching coming close to tracking its target, day to day.

    The odd thing is, I can't even find a single theory anywhere online that even questions this.

    Any theories?
  2. Good observation.

    Unfortunately it is not designed to directly track the CBOE VIX, and correlation to that index is pretty horrible. I calculate .67 to date, which is close to their .7 value.

    They track S&P 500 VIX Short-Term Futures™ Index TR with a corr =1.

    Kind of silly when they are promoted to
    capture volatility of CBOE VIX.


    Look how bad they track on big days.

    Rolling correlations to CBOE VIX are all over the place (from -1 to 1)-- yuck.
  3. Contango my friend Contango.....

    Rolling this thing from one month to the next is cutting roughly 8% out of the price every month....This is not all seen on one day, but during the few days(Probably 5-8 days) that they roll the this contract....By the way VIX Futures are pretty thinly traded as well and I highly doubt they are waiting to get filled at the BID.

    Selling a contract for 21 and buying the next month for 23 is killing this thing....

    I have seen the roll be as large as 15% at times...

    Understand your ETF's and read the fine print...

  4. I understand that. I am looking at a chart of short term futures for the VIX on a bloomie. The charts are massively divergent.
  5. This could be....I hadn't looked at the forward curve. Should've. Will look at it in the office tomorrow.
  6. Show a direct link or post what you are referring to. If you understand it, you shouldn't expect the charts to track, however, they are not that divergent (keep in mind you have to adjust for relative price levels).

    Here is a chart of how they track over the long run (normalized to start at 100), obviously not great. But if you understand the kind posts in response, it should not come as a surprise.

  7. I had a thread similar to this a week or so ago. I disagree that this is a bad vehicle for passive VIX exposure. It is the ONLY vehicle for passive VIX exposure for starters. Secondly, they do not roll monthly, they roll daily!! Read the prospectus. They do a weighted roll on the two nearest contracts to fight the contango. Look at VXX since inception. What's not to like. Show me a better ETF that is as consistently negatively correlated over the long term. The inverse S&P ETF only tracks *daily* inverse performance, meant for day trading hedges.

    So I think the complaining is a bit off the mark.

    And for the record, while I disagree with this blogger, he has the best info on VXX and VIX in general. http://vixandmore.blogspot.com/
  8. I like how you use the word "Fight" the effect of contango... Now I may be old and a little outdated, but when you are selling Feb futures daily (like you pointed out) most likely hitting the BID and buying Mar Futures most likely paying up at the ASK with little regard as to what print they are getting (Cause it ain't their money)...

    And you used the word "Fight"...
    What... Do you work at Barclays?

    Snap old man still got skills!!! All I tired to do was explain CONTANGO and how nasty this effect can be....."FIGHT" LOL


    Feb 20th Feb VIX futures OPEN= 21.9 High=22.5 Low=21.35 Close=21.4 (They sell a few of these everyday)

    Fe 20th Mar VIX Futures OPEN=23.2 High=23.6 Low=22.65 Close=22.8 (while buying a few of these everyday)

    It's wasn't that long ago they were selling 28's and buying 35's when I first started paying attention to this thing

  9. Are you trying to be a comedian? Don't quit your day job. My point is that their method of dealing with contango is better than what you gave them credit for. My other point is that you can't find a better passive way to gain exposure to the inverse performance of the S&P or the VIX, or you would have shown it to us by now. Go back to sleep.
  10. Sure I can....Buy a Put and Buy a call of the SPY at the same strike and "tada" you are now long VIX....Then roll the thing every month...Theta working against you probably better than this contango..

    And for the S&P you can short SPY or go long SH (Even though SH has some flaws as well)

    No-one ever said making money while trying to be sophisticated was easy or PASSIVE.

    Day job you have no idea who I am....That is a good one...

    #10     Jan 21, 2010