Tag Archives: vxx

The Bright Side Of Volatility

Stock markets around the world have had a bumpy ride so far in 2016. The CBOE Volatility Index (often called the “VIX”), a measure of expected stock market volatility, has doubled since early November , and US stocks have fallen more than 10% since the start of the year. These kinds of changes can be gut-wrenching and can make it difficult to maintain a long-term perspective. But for some investors who are able to do so, there’s a bright side to volatility. If you’re periodically investing money, such as putting a portion of each paycheck into a 401(k) account, volatility isn’t necessarily bad. When markets fall you’re able to acquire more shares, giving you “more bang for your buck.” This concept is similar to ” dollar-cost averaging ,” where the average price you pay for an investment will be less than the average of the prices at each of the times you’re investing (because you’re acquiring more shares when the price is low and fewer shares when the price is high). Compared to if markets just blandly moved in a straight line, the ups and downs allow your periodic investments on average to go farther. Of course, there are a few caveats to this volatility fairy tale. First, it assumes that the market will end up in the same place regardless of how much volatility there is. This assumption is clearly sometimes false; stock markets would almost certainly be higher right now if the beginning of this year had been a paragon of financial tranquility. But over the long term it’s approximately true. Stock prices 20 years from now are unlikely to be massively affected by how much stock market volatility there was in 2016. Second, the potential benefits of volatility only apply if you have a long time horizon for your investments. If instead you need the money in the near future and markets plunge, the fact that you can then get more bang for your buck won’t do much good. Perhaps the most important caveat, however, is that you need to be able to stick to your strategy of periodically putting more money into the market. When the kind of turbulence that’s characterized stock markets this year arrives, it can be tough to invest money knowing that one wild day of market moodiness might eliminate a chunk of it. But those who are able to continue making periodic investments can benefit in the long run.

Every Single VIX ETP (Long And Short) Lost Money In 2015

Just one month ago, in The Current VIX ETP Landscape , I plotted all twenty-four VIX exchange-traded products with respect to leverage and maturity, using leverage on the Y-axis and maturity on the X-axis. I also included a half dozen VIX strategy ETPs that have no easily discernable point on the leverage-maturity grid. Depending on how finely you wish to split hairs, these twenty-four ETPs cover approximately seventeen unique ways to trade volatility long and short, across various maturities and according to a wide variety of strategic approaches. The big story is that in 2015, not one of those VIX ETPs was profitable. In fact, the mean VIX ETP lost over 21% for the year. This means that in those instances where there are long and inverse pairs – notably the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) and the V elocityShares Daily Inverse VIX Short-Term ETN (NASDAQ: XIV ) as well as the iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA: VXZ ) and the VelocityShares Daily Inverse VIX Medium-Term ETN (NASDAQ: ZIV ) – both the long and short version of the same volatility trading idea lost money. This all happened in a year in which the VIX fell a mere 5.2% from the beginning to the end of the year. While contango was a factor during the course of the year, contango affecting the front month and second month VIX futures averaged a relatively mild 4.3% per month during the year, while contango between the fourth month and seventh month was slightly above average at 1.6% per month. The biggest culprit affecting the declines were the huge moves in volatility, with three one-day VIX spikes of greater than 30% occurring in the space of two months. The large volatility spikes had a considerable impact on end-of-day rebalancing, leading to volatility compounding price decay. One last technical note, with respect to the AccuShares Spot CBOE VIX Up Shares ETF (NASDAQ: VXUP ) and the AccuShares Spot CBOE VIX Down Class Shares ETF (NASDAQ: VXDN ) products, I have yet to see AccuShares or anyone else attempt to calculate the performance of these products for 2015. Given the chaos created by regular, special and corrective distributions, in addition to reverse splits and stock dividends, calculating performance for these two ETPs is not a project I have the inclination to tackle right now. That being said, until I see the calculations, I cannot be 100% sure that VXUP had a losing year in 2015. Consequently, in the event that VXUP did post a gain, this would be a good time for AccuShares to post some performance data and claim at least one public relations victory in this space. To the broader audience, if you happen to be sitting on an idea for a VIX or volatility-based ETP that would have been a winner in 2015, this is an interesting time to consider moving forward with that idea. Looking ahead, I will have a lot more to say about VIX ETP strategies, VIX ETP performance and related subject going forward. [source(s): VIX and More]

Is UVXY Shutting Down Due To New SEC Rules?

Summary A look at newly proposed SEC rules. How they could affect ProShares products. A look at the current volatility landscape. Before we get started I wanted to highlight my last article: Neuroeconomics and Volatility . I really enjoyed writing this piece and it is a very different take on your normal volatility reading. Feel free to share this unique piece. A reader of mine recently alerted me to an article that claimed many leveraged ETFs would need to close due to a newly proposed Securities and Exchange Commission (SEC) rule. This article will serve to properly inform readers on how this may affect the ProShares Ultra VIX Short-Term Futures (NYSEARCA: UVXY ). Article In reference to the original article that made this claim, I would like to focus for a minute on the strategy they are talking about. This strategy is close to the ones I have shared with you here on Seeking Alpha in regards to shorting volatility and taking advantage of contango and the effects of leverage. David Miller’s Catalyst Macro Strategy Fund uses a bread basket of many leveraged ETFs to short and take advantage of the decay of the underlying assets over time. He specifically mentions UVXY as one of the funds holdings and maintains a net short position in the volatility ETF. I encourage you to read the article as it presents other ETFs and strategies that we have not discussed in relation to volatility and leveraged ETF investing in general. SEC Comments On 12/11/2015 the SEC proposed new derivatives rules for registered funds and business development companies. You can read the full release here . The bottom line of the proposal, in relation to ETFs, is to prevent funds from liquidating due to extreme moves in their underlying indexes. It appears that this rule may put an end to my dream for a leveraged inverse volatility fund. ProShares Comments According to ProShares (view release here ), they are confident that this proposal will not impact their ability to offer the current 2x inverse and 2x ETF and mutual funds which include UVXY. However, it may impact their ability to operate 3x leverage funds. These funds mainly track broader market indexes and sectors. You can view a list of those funds here . My take I wouldn’t be concerned with the talk about UVXY shutting down and I also wouldn’t let it affected your trading objectives. The only affect this has on my current objectives would be to switch to the iPath S&P 500 VIX ST Futures ETN (NYSEARCA: VXX ) options if I am looking at more than a year until expiration, just in case. Any decision the SEC makes will be phased in over time and this proposed rule must still be approved by the Commission and will then be subject to a 90 day comment period. Seeking Alpha is a great place to get up to date information on these types of changes and any new information will surely be covered by myself or other fine contributors. Current Volatility Futures Backwardation has once again appeared. See below: (click to enlarge) Current Futures: (click to enlarge) Conclusion As we move into 2016 I am looking forward to the change in pace of volatility spikes. Hopefully we will move toward a trading environment where we see backwardation events on average every 2-3 months. I am not currently shopping for a large short volatility position unless market conditions deteriorate a little further. I may take small short positions here and there with very short-term trading objectives. Coming up you have the start of a Federal Reserve meeting that wraps up mid-week with a widely held notion that rates will be raised for the first time since 2006. The government shutdown is still on for the end of the week with a consensus that a deal will be struck before then. It doesn’t appear that UVXY is shutting down anytime soon due to the proposed SEC requirements. I wouldn’t panic and recommend you wait until more information becomes available. Have a great end to 2015 and thank you very much for reading.