How does VXX trade? How is VXX’s value established? What does VXX track? How does Barclays make money on VXX? VXX’s 2022 share creation crises On 14-Mar-2022, Barclays suspended share creations of VXX due to an administrative screw-up. During the suspension, VXX traded at premiums as high as 52% over its IV price. This premium over the IV price can develop because share creations are …
Many people seem to believe that the CBOE’s VIX Futures market is attempting to predict upcoming CBOE VIX® values. I think they are mistaken. Most futures prices have very little to do with predicting the future. Futures contracts were invented to allow producers/consumer of commodities to limit their business risk by locking in future prices. In exchange for eliminating price risk, they give up the potential for increased …
The price of Herbalife ($HLF) has been relatively stable the last couple of weeks with the Icahn / Ackman tug-o-war in a tense tie. The historical volatility has been running around 26, but the IVs on the weekly options are relatively rich with the average running around 50. Currently a 35.5/37/39/40.5 iron condor is offering a .575 credit (midpoint) for the 12-April-13 options. …
Update: VIXCentral has enhanced their historical term structure graphs to use days to expiration rather than months for the time axis of the charts. This change eliminates the distortions that I wrote about in the post. VIXCentral’s historical charts now look a lot like the Excel charts that I generated for this post. Term structure graphs, like the VIX® future charts on VIXCentral.com are very …
Investors betting on the next volatility spike have taken a beating. The last time the CBOE’s VIX® index closed above 30 was December 8th, 2011. In the 16 months since the split adjusted price of Barclays’ VXX has dropped from 174.84 to 20.34—an 88% drop. None of the 14 other USA based volatility funds that are designed to rise with volatility increases did well, the best …
