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Bill Luby  

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  • Impressive First Day of Trading for Sextet of New Volatility ETNs From VelocityShares [View article]
    However you choose to proceed, you should keep an eye on XVIX, which is simultaneously short 50% short-term volatility and long 100% mid-term volatility. It may not be exactly what you had in mind, but will likely inform your thinking further on down the road.

    Cheers and happy holidays,

    Dec 21, 2010. 08:05 PM | Likes Like |Link to Comment
  • Impressive First Day of Trading for Sextet of New Volatility ETNs From VelocityShares [View article]
    Hi convoluted,

    Sorry for the belated response. My intent is not to dole out strategy advice, but I would be somewhat wary about selling VXX puts, unless I were compensated highly for them. Selling calls has more long-term appeal, but risk management becomes a huge ordeal with this strategy. Yes it may be possible to amortize the cost of owning VXX, but owning VXX is somewhat of a swinging for the fences play. Personally, I would have been disappointed to have sold covered calls on any volatility product in April 2010 when the VIX tripled in only one month.

    Something to think about, anyway.

    Dec 19, 2010. 03:16 PM | Likes Like |Link to Comment
  • Impressive First Day of Trading for Sextet of New Volatility ETNs From VelocityShares [View article]
    Hi nitroae23,

    Apologies for the belated reply.

    Regarding XXV, yes it does not capture the full inverse of VXX. If you are looking for an inverse play that does a better job of tracking -1*VXX, I recommend you check out XIV.

    Dec 19, 2010. 03:12 PM | Likes Like |Link to Comment
  • Citi VIX ETN Begins Trading [View article]
    Hi Whitehawk,

    The pricing supplement link from my original CVOL post still works for me:

    From that document:

    "CVOL ER Index Methodology

    The CVOL ER Index (Bloomberg ticker: “CVOLE”) models the returns on a combination of (a) a long position in a portfolio of third- and fourth-month VIX futures contracts that are rolled continuously on each index business day, multiplied by a factor of two and (b) a variable weighted short position in the S&P 500® Total Return Index as reduced by the Treasury Return"

    I hope this helps.

    Nov 16, 2010. 11:05 AM | 1 Like Like |Link to Comment
  • Chart of the Week: Uptick in the Employment Picture [View article]
    Good point about the visibility of the lines. I have edited the chart and the next time around it will be much easier to read.


    Nov 15, 2010. 05:34 PM | 1 Like Like |Link to Comment
  • Interesting New Leveraged Volume ETN Coming From Citi [View article]
    While I understand your caution, the focus on VIX futures in the 3-4 month range should minimize much of the contango problems associate with VXX. As CVOL launched today, we will know fairly quickly how it performs relative to VXX.


    Nov 15, 2010. 05:11 PM | 1 Like Like |Link to Comment
  • Chart of the Week: The Google Volatility Story [View article]
    Like other aspects of marriage, that one takes a bit of work...
    Oct 21, 2010. 06:28 PM | Likes Like |Link to Comment
  • Chart of the Week: The Google Volatility Story [View article]
    Time to get long apes.
    Oct 21, 2010. 06:27 PM | 1 Like Like |Link to Comment
  • The Case for VQT [View article]
    Hi, Robin,

    I am not convinced that the volatility hedge is implemented in ideal fashion, but it should definitely be effect if volatility is trending higher.

    Also, thanks for the kind words about the newsletter. I am delighted to hear that the newsletter is hitting a sweet spot for you. My intent has always been to make it comprehensive, but readable and affordable for a broad audience.


    Oct 15, 2010. 06:59 PM | Likes Like |Link to Comment
  • VIX Sets Two New Records [View article]
    Interesting...and definitely worth a click through.
    Oct 14, 2010. 04:09 PM | Likes Like |Link to Comment
  • VIX Futures: What Were / Are They Thinking? [View article]
    I would be careful selling VXX puts unless we get an even bigger VIX spike than what we have today.

    In general, when I talk about the longer term with VIX and VXX, I am referring to where the term structure starts to flatten out. In the chart above, that would be the Jan expiration as of Sept 13; in my post yesterday, linked below, that would be more like the March futures/options or perhaps February:


    Oct 14, 2010. 02:05 PM | Likes Like |Link to Comment
  • Commercial Real Estate Sub-Sector Breakout [View article]
    The three largest components of residential (at least in REZ) at the moment are apartments (47%), health care (37%) and self storage (13%).

    So if you consider an ugly housing markets is forcing people out of their homes, this would generally increase demand for apartments and self-storage facilities (assuming most people would be downsizing from their house to an apartment) which is 60% of this ETF. Ironically, here you have a residential real estate ETF that is actually structured to perform well in a deteriorating residential real estate market!

    Health care is largely driven by demographics and off the cuff, I'm guessing it is reasonably uncorrelated to the residential real estate market.

    Thanks for the comments.

    Oct 6, 2010. 04:14 PM | 1 Like Like |Link to Comment
  • Hope and Depression in the Investor Sentiment Cycle [View article]

    Your questions points to where I might wish to tweak the model a little, or at least incorporate some counter-trend cycles, just as Elliott Wave theoreticians do.

    But keeping to the graphic as presented, there are two separate distinctions: absolute and relative states of mind. Denial implies the inability to acknowledge that the major trend is down, whereas hope implies that the major trend is up. In a sideways market or market with a lot of counter trends, this distinction starts to get a little blurry.

    Another way to answer your question is to ask whether we are in a bear market that began in 2000 or 2007 -- or in a bull market that began in 2009. I think the way one answers that question has a lot to do with how they look at the investor sentiment cycle and where they see the current state of the markets.


    Sep 17, 2010. 01:21 PM | 1 Like Like |Link to Comment
  • VIX Futures: What Were / Are They Thinking? [View article]
    VXX and leveraged ETFs do exactly what they are designed to do. As you are aware, the problem is that over time these investments provide a negative return for the long-only buy and hold investor.

    It is important to understand, however, that if the VIX spikes, the VIX futures term structure typically changes from contango to backwardation, so an investor holding the underlying will be rewarded first by the increase in volatility and second by the positive roll yield from the VIX futures term structure. To use your example, this flip flop turns the investor into the house instead of the gambler, at least for awhile. The problem lies in waiting for the VIX to spike, with contango-related decay feeling a lot like the time decay one would get from holding a long VIX (or VXX) call option and losing money each day that the VIX did not spike.

    The situation with VXX is different from that of ETFs, where the decay due to volatility compounding works in favor of the investor as long as ETF trends in the desired direction. It is only the choppy back and forth that causes losses. So a two day holding period is not a problem and a three day holding period is only a problem if the ETF reverses direction on the third day. Any subsequent losses incurred from the leveraged nature of the ETF are path dependent.

    That being said, your main point is a good one: neither VXX nor leveraged ETFs are advisable vehicles for long-term buy and hold investors

    Finally, I am still holding out hope that products like VQT might be able to move the discussion of VXX as a hedge into a more constructive light:

    Sep 16, 2010. 06:06 PM | 1 Like Like |Link to Comment
  • VIX Futures: What Were / Are They Thinking? [View article]
    Hi J,

    For holding periods of a few days, VXX is an adequate way to hedge against a volatility spike and/or a pullback in stocks. There is some problems with negative roll yield due to VIX futures contango, but this is minimized at the start of a new VIX expiration cycle, as is the case today.

    For longer-term hedges, VIX futures and options are probably a better hedge than VXX or VXZ.

    Sep 15, 2010. 11:11 AM | 4 Likes Like |Link to Comment