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The "fear gauge" is flawed, says Citi's Mike Pringle, and investors risk harm by using the VIX...

The "fear gauge" is flawed, says Citi's Mike Pringle, and investors risk harm by using the VIX (VXX) as an indicator of market risk. "It's an asset class and it's more traded for yield than protection," he says, noting the growth of structured products based on the VIX as dampening reported volatility. "It's still relevant in extremes, but not in a normal functioning market."
Comments (15)
  • eallen59
    , contributor
    Comments (3) | Send Message
     
    what yield?
    10 Jul 2013, 09:39 AM Reply Like
  • MILESCFA
    , contributor
    Comments (178) | Send Message
     
    The concept is fairly simple (I don't know the exact mechanics): The VIX is a "derivative" of the SPX. If you are long the SPX, you can sell VIX puts; if the market goes up, you gain on the SPX but the VIX declines, resulting in a partial loss in your short VIX puts, but it's partial because the premium you collect.. and vice versa.

     

    More directly and easier to understand, you can buy VIX futures and sell VIX calls (where most of the premium is) and it is a "buy-write", which has a yield just like a buy-write on the SPX or any stock.
    10 Jul 2013, 10:21 AM Reply Like
  • 13373242
    , contributor
    Comments (2) | Send Message
     
    Can Mike please explain how this is a "normal functioning market" more like A.B. Normal aka Young Frankenstein market.

     

    Let's get rid of Big Ben's 85B plus crack cocaine per month cold turkey and then let's see a normal functioning market.
    10 Jul 2013, 10:03 AM Reply Like
  • jreim@investmentctr.com
    , contributor
    Comments (3) | Send Message
     
    I echo what yield and would also like a better understanding of VXX,XVZ,etc. Its not working.
    10 Jul 2013, 10:09 AM Reply Like
  • jreim@investmentctr.com
    , contributor
    Comments (3) | Send Message
     
    I echo what yield and would also like a better understanding of VXX,XVZ,etc
    10 Jul 2013, 10:09 AM Reply Like
  • EARLPEARL
    , contributor
    Comments (254) | Send Message
     
    tvix has ate my breakfast, lunch, and dinner for last few moths....BUT I BOUGHT MORE YESTERDAY......paid 2.37 and i will buy more at 2.10 if it gets there........SOMETHING is going to BLOW UP i do not know when but japan...europe...china... something is coming unglued soon....when it does tvix will be the place to be....MEANWHILE SOMEONE SEND ME SOME FOOD
    10 Jul 2013, 10:09 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1558) | Send Message
     
    LOL. By the time it blows up, you'll be down 99.999% (as you likely already are) and will never recover even 25% of your initial investment.
    10 Jul 2013, 10:54 AM Reply Like
  • Israel Shenker
    , contributor
    Comments (118) | Send Message
     
    While Pringle does a wonderful job elucidating the data on trading volumes surrounding VIX derivative products that does little to explain the VIX spot pricing reflecting the premium paid for options on the SPX.

     

    The VIX spot pricing has nothing to do with the VIX futures or options. It is priced from a basket of SPX calls & puts averaging 30 days to expiration. No amount of trading in VIX derivatives will affect the prices paid for those options and thus the VIX spot price.
    10 Jul 2013, 10:26 AM Reply Like
  • jmjjmj1
    , contributor
    Comments (149) | Send Message
     
    Buyer beware I stopped trading these last year as VXX killed me and guess what I had the direction right this instrument should NOT be allowed to be called a short VIX as does not even track the VIX, btw TVIX is even worse. Stay away from these for protection you are chasing a rabbit in a hole and it will drain your wallet and fast!
    10 Jul 2013, 10:28 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1558) | Send Message
     
    Their prospectuses clearly lay out the dangers. Why should they not be allowed?
    10 Jul 2013, 10:55 AM Reply Like
  • larry214001
    , contributor
    Comments (68) | Send Message
     
    No need to deal with vxx and tvix unless you are just trading very short term. In the medium and long run they will drain you. There is potential profit in the slower moving vix derivatives. You should do some thinking about the best way to do this.
    10 Jul 2013, 04:02 PM Reply Like
  • EARLPEARL
    , contributor
    Comments (254) | Send Message
     
    i assume all of the commentors who knew months ago that tvix was going straight down are short this stock....if you have not been short the stock then why not?
    10 Jul 2013, 05:26 PM Reply Like
  • chillen22
    , contributor
    Comments (43) | Send Message
     
    I have traded the VXX very successfully over the last three or four years. I always buy it after we have a few consecutive days of up markets. Then turn around and write calls on the position out a month or so for a 10% gain or so and then wait for it to be called away. i never hold it very long. longest i have held a position is 3 or 4 months. normally write 2 contracts on a position before it gets called away. I definitely do not hold for long periods of time and only buy a few hundred shares to write 2 or 3 contracts so it is a small portion of my portfolio.
    11 Jul 2013, 12:53 PM Reply Like
  • brxoptions
    , contributor
    Comments (3) | Send Message
     
    Has anyone considered being backspread in the S&P options as an alternative to using the vix as a vol hedge. as the vix suffers from its own issues of contango and with the increasing margin requirements.
    15 Jul 2013, 10:19 PM Reply Like
  • Israel Shenker
    , contributor
    Comments (118) | Send Message
     
    Please explain the mechanics of the backspread you would be putting on.
    16 Jul 2013, 10:33 AM Reply Like
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