The CBOE’s VIX index gets mainstream exposure as the “fear index”, but there’s a lot more to volatility watching than the VIX. The VIX does a good job of measuring the current level of anxiety in the market, but it has some problems. Among other things it’s: Not a good predictor of the future Often does not move in the direction people expect (opposite the …
From August 2nd to October 3rd, 2011 Barclays’ S&P 500 VIX Short Term Futures ETN (VXX) had a great 137% runup. In that same period ProShares’ UVXY, 2X leveraged Exchange Traded Fund (ETF) went up an astonishing 348%, 73 percent more than its 2X leverage factor would project. How is that possible? Don’t inverse and leveraged funds always underperform the index they’re tracking? Normal market …
Update This article was first posted in September 2012. The strategy outlined below worked well until August 2013 and then basically went sideways for over 3 years before perking up again in 2017—when virtually any short volatility strategy worked. I’ve updated the chart and the verbiage to reflect those changes. In September 2017 the Cboe renamed its VXV index as VIX3M. The Cboe does not …
In the past you could invest in mid-term volatility, four to seven months out, without worrying too much about the erosive effects of contango. That’s not the case anymore. Strategies that hold long/short positions in mid-term and short term VIX futures as well as ETPs that hold mid-termVIX futures such as Barclays’ VXZ and XVZ and ProShare’s VIXM are getting dragged down. Most of …
