Over the last 3 months both VIX and VXX are actually up (albeit slightly for both). You know what is not up on the year, UVXY and TVIX. The combo of levering and contango make the product pretty great in a market where the VIX is exploding (see mid October) but pretty awful the rest of the time
Generally speaking, when the VIX is high, its a sale and when its low, its also a sale. However, there is one time where the expected pay out of selling VIX futures or options is not that great, when the VIX curve starts to do this:
The market had its biggest drop in months. It below through the 50 DMA, and if things keep going it could threaten the 100 DMA if things keep going. Today, on CNBC I am sure the anchors are panicked. Yet, the VIX was up less than 3 points at the end of the day, despite the SPX closing on the lows. Why? Take a look at this chart of the SPX, 30 day IV and 20 day HV.
With 4 ½ weeks to go in the VIX Aug cycle, there is not a lot of enthusiasm for the August VIX future. Is it cash too high or futures too low or just a combination of them both? There was an average mark up in VIX due to the weekend but not much more than that. Stocks sold off but really did not have a lot of gas to keep going down.
Just about every source has written about how, the VXX is what we thought it was: a good way to day trade volatility and a terrible vehicle for tracking the VIX. We have written about it multiple times. , Bill at VIXandMore has, Jared at Condor Options has, actually just about everyone has. However, very rarely do we get such a clear example of how the ETN fails as a multi-day VIX tracker than we saw over the last two days. Take a look at this chart:
With Syrian warplanes getting into the mix stocks took a slight pause today. Between Syria and Iran the ISIS militants have found a more able adversary. Early in the session the NDX was moving into some lofty ground but by the end of the day started to head into negative territory. The only names still up were Treasuries and the volatility products.
At least for now VIX hit rock bottom on Friday. There are several components to the volatility complex and VIX is just one of them. As far as the volatility futures are concerned they did break lower today for a while. VXX, which is made up of volatility futures, touched below $30 to record a new low for the year.
I am fresh from a webinar for TradeMonster entitled “Trading in a Low Volatility Environment”. It was good to have so many questions about the alternative trade setups. The big takeaway of course is that a trade set up when vol is cheap has a certain character. With the VIX staying comfortably below the 12 handle we certainly are that. The surprise of course is the economy can contract and we rally to all-time highs. I guess paper wanted to buy the recession dip due to the bad weather. From what I can tell global cooling is a lot worse on the economy than global warming but good for stocks.