VXX on Feb 10 2012 trade.

Discussion in 'ETFs' started by HezBallah, Feb 15, 2012.

  1. Here are my questions and the summary in bullet form:

    - So, the VXX blew up leading up to Friday's close before a volatility event (Greece possibility not passing austerity measures leading to a Greek default in March). SPY didn't move down at all. It seems like someone was just taking a view with the VXX leading up to the weekend. They probably were betting that Greece would not pass austerity measures. Put activity wasn't that great in the SPY so it's not like someone sold a lot of puts on the S&P and was hedging with the VXX. It just seemed like the VXX was going up because someone was taking a view. Even if that's the case, why didn't other people short the VXX and short SPY? It seems odd that the SPY didn't move.

    -How does one measure how out of line the VXX is becoming? How can I plot this activity and VXX prices on a normal dist curve and see how far out of line the VXX is compared to vol events of this nature in the past? Also, how do I compare vol events? The problem I'm having is quantitatively comparing this event with different qualitative events in the past. How do I compare the greece austerity passing to a different kind of event in the past? Once I "normalize" events, how do I compare this VXX activity to VXX activity in the past to see where I should be shorting (I'd like to short prices that are like 2 standard deviations away from the mean. I think?)
    -Why didn't SPY move? Why didnt the efficient market short SPY and short VXX? How do I measure the Beta there? Honestly VXX could open up 20% and the SPY could be down only like 5%. How do I figure out the Beta or hedge ratio here?
    -How do yield curves and treasuries play into this? Since this kind of event would be one that would affect credit, should I be checking yield curves here instead of the SPYs? Does that make sense?
    - So, thoughts? What is going on? If your trade is to short VXX and short SPY (I did), where do you do it? What price in the VXX does one do this? Let's assume your instruments are the VXX (ETF) and the SPY (ETF). No options involved.

    Thoughts? Is this something any of you trade at all?