Toward the end of September, I argued that VXX, the iPath S&P 500 VIX Short-Term Futures, was making a bottom. While some kind of bottom has been confirmed with the spike in volatility last week, the VXX has proved to be a dud in following this spike. While the VIX has popped about 29% from its intraday low on September 23 to Friday’s close, the VXX has moved a relatively paltry 10% over that same time. There is little point in taking on all the downside risk inherent in the VXX, when we participate in so little of its upside. VIX expert Bill Luby makes this point very well and provides additional evidence on how poor the VXX is as a short-term or long-term play on the movement in volatility.
After this latest correction in the S&P 500 runs its course, I will be dumping my entire position in the VXX.
Be careful out there.
Full disclosure: long VXX, long SSO puts