VXX or UVXY during recession

Discussion in 'ETFs' started by killATwill, Oct 12, 2019.

  1. Thoughts on what would happen to VXX or UVXY during a recession?

    These are imperfect products but assuming volatility is persistently elevated for a period of a year to two years, how would one imagine these products would fair?
  2. My two cents- With respect to the VXX, it’s always under performed the VIX long term because of the cost of contango, or rolling the futures month to month. If the Vix moved and stayed elevated and the Vix futures went into backwardation then you could see the vxx outperform.

    Side note: Selling calls spreads on the VXX has been one of the easiest trades of the decade so that would prob end
    jys78 likes this.
  3. guru


    They would substantially go up :)
    I guess you could buy and hold, or trade, UVXY and make money - but it’s always about timing. If recession doesn’t materialize soon enough then you’d lose due to decay. But possibly a good alternative could be to buy and hold LEAP SPX or SPY options: puts or put spreads or butterflies, where you can at least control what level of SPX you’re aiming at and then just wait until it gets there.
    With UVXY you just can’t visualize where it will be and what your P&L may be when SPX hits 2000, for example. But with SPX LEAP puts you have pretty good control of the SPX price level, time, and P&L - for example when buying a 2500-2400 put spread for 2021, you can figure out exactly how much money you’d make.

    Btw, look at how VXX and UVXY behaved last December, how/whether you’d make money, and how much “better” you could do if that downtrend continued consistently for couple more weeks (which may not happen during a recession anyway, as things may be just shaky for a year+).
    yogi_trader likes this.
  4. @guru @yogi_trader Thanks for insights.

    From Jan 2018 until now the term structure of the Vix has shifted higher and the time decay for holding VXX has declined substantially. (UVXY suffers from more substantial decay.)

    Imagining that a long-term holder of VXX may benefit if the term structure were to shift even higher for an extended period of time in the event that the economy went into recession.
  5. Sig


    There's an inherent assumption in this discussion that recession = high volatility. While the inflection from growth to recession may certainly exhibit this causation, I'm not sure there's anything more than random chance that it would persist in a multi-year recession. In fact my (completely unresearched) hypothesis would be that in a grinding recession all the punter money would be driven out of the market and you'd end up with less volatility rather than more.
  6. Didn't ProShares already rape holders of SVXY and UVXY?
    1X & -2X CHANGED to 0.5X & -1.5X respectively without warning!

    While the leverage was nice, it was not reliable!
    Barclays, with VXX, has been trustworthy!

    Pardon for the sour apples.
    KCalhoun likes this.
  7. jys78


    The option holders REALLY got savaged on this one. I'm still not sure how that was legal.