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The Long Tail of Finance
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Interests: Investing and trading in bonds, options, and stocks. Overview: As my user phrase implies, 'The Long Tail of Finance' can cover pretty much any topic within finance. That is: corporate finance, quantitative finance, and personal finance. However, in order to cater to Seeking Alpha's... More
  • Dissecting The IPath S&P 500 VIX Short-Term Futures ETN(VXX) 0 comments
    Jul 21, 2012 6:03 PM | about stocks: VXX


    Investor demand for trading vehicles that allow one to express a view on volatility, irrespective of underlying price direction, has spawned a plethora of exchange traded products. Some have been wildly successful, while others have failed. One relative success has been the exchange traded note (NYSE:ETN) referencing the S&P 500 VIX Short-Term Futures Index Total Return, or VXX. However, despite its success as a product introduction it turns out that VXX does not entirely succeed as a vehicle for trading or hedging volatility (as defined by the VIX index). Challenges for the VXX are driven mainly by persistent VIX futures curve contango, and by how the underlying reference index, SPVIXSTR, is defined, which in turn has the undesirable quality of creating non-perfectly positive correlation with the VIX Index. Taken together, these shortcomings can make VXX a poor choice for trading or hedging volatility.

    The full blog article can be found here:

    ***April 3, 2015 Update***

    Take a look at the following two Bloomberg graphics, which confirm what I've written in the blog. Mainly, that the VXX is a poor vehicle for trading the VIX from the long side.

    (click to enlarge)

    (click to enlarge)

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: VXX
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