In the midst of all the emerging markets turmoil, I wanted to take a moment to acknowledge the fifth birthday of the two pioneering VIX ETPs: VXX and VXZ. Launched five weeks before stocks hit their 2008-09 financial crisis bottom, both VXX and VXZ have struggled against a tide of falling volatility over the course of the past five years and have also been battered by persistent contango in the VIX futures, which has created additional head winds in the form of negative roll yield.
The table below captures the grim history of these two products, looking at product lifecycle years from January 30th to January 30th:
Source(s): CBOE, Yahoo, VIX and More
Note that even though each of the five years have been losing years for both products, there have been periods in which these products have been extremely strong performers. One of these periods was from July to October 2011 when VXX nearly tripled (maximum gain of 198%) and VXZ rallied some 66%. I mention this because both have performed well in January, with VXX up 13.0% as I type this and VXZ with gains of 2.2% for the year.
While I am not going out on a limb and predicting a renaissance for these two VIX ETPs, they are two of the most important and liquid VIX ETPs on the market and can be attractive hedges or speculative trades when the markets go through a period of selling and/or there are concerns about a potential crisis.
I have been writing about these since even before they were launched and will continue to offer my thoughts on them going forward.
Disclosure: Short VIX and VXX at time of writing.
Source(s): CBOE, Yahoo, VIX and more.