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Though the share price is down 67% YTD, the number of shares issued for the VIX ETN (VXX)...

Though the share price is down 67% YTD, the number of shares issued for the VIX ETN (VXX) has soared sixfold to 142M. Trading volatility is the equivalent of competing in the deep end of the pool - unless you're Mark Spitz (showing our age, let's make it Michael Phelps), you may want to avoid.
Comments (12)
  • youngman442002
    , contributor
    Comments (5131) | Send Message
     
    This is proof it truly is just a casino now....
    16 Aug 2012, 10:56 AM Reply Like
  • 427812
    , contributor
    Comments (14) | Send Message
     
    Speaking of ancient Spitz--they didn't even wear goggles swimming back then. (check the tape Methuselah)
    16 Aug 2012, 11:01 AM Reply Like
  • Seeking Alphalfa
    , contributor
    Comments (111) | Send Message
     
    The underwriter continues to issue shares that they know are going to zero -- not very surprising. How the SEC can ignore this is disturbing.
    16 Aug 2012, 11:04 AM Reply Like
  • cathodin
    , contributor
    Comments (35) | Send Message
     
    What is important for investors ? Increase in number of shares or decrease in value of VXX by 67 %. Investors will like helpful recommendations.
    16 Aug 2012, 11:58 AM Reply Like
  • bmacnish
    , contributor
    Comment (1) | Send Message
     
    except the odds are far better in the worst casino
    16 Aug 2012, 12:53 PM Reply Like
  • 427812
    , contributor
    Comments (14) | Send Message
     
    SEC is toothless. (See Harry Markopolis and Bernie Madoff). I have learned that the SEC prevents nothing and investigates nothing until there is a corpse. Then they arrive/ wring their hands and apply the toe-tag. (See JPM's whale.)
    16 Aug 2012, 02:29 PM Reply Like
  • Israel Shenker
    , contributor
    Comments (118) | Send Message
     
    Mr. Alphalfa,

     

    The SEC can ignore it because it is an ETN which clearly discloses that it is expected to be worthless at redemption. It is billed as a trading vehicle NOT an investment. People still have an obligation to READ the prospectus.
    16 Aug 2012, 03:51 PM Reply Like
  • Seeking Alphalfa
    , contributor
    Comments (111) | Send Message
     
    Izzy -
    Agreed that it is ultimately the individuals's responsibility - I also believe that market forces will ultimately rid these products from the market. That said, IMO this is a black-and-white issue and very low-hanging fruit for the SEC. Requiring disclosure does not mitigate their responsibility to protect the consumer. The SEC regulates products that are guaranteed to increase in value (nominally) more than these. These products are suitable for no one - they simply steal money from uneducated speculators and wannabe hedgers -- while occasionally rewarding luck.
    16 Aug 2012, 04:25 PM Reply Like
  • Donpn
    , contributor
    Comment (1) | Send Message
     
    Buying PUTS on spikes has worked, just have not had any recent spikes.
    16 Aug 2012, 04:34 PM Reply Like
  • clharley
    , contributor
    Comments (14) | Send Message
     
    VXX is a good tool for managing a portfolio. Using options in conjunction with VXX is a powerful tool. If you are sure that VXX is a scam, just try selling a bunch of OTM naked calls (something I would not do.)

     

    If you buy OTM puts to protect downside on a stock, you usually expect that the most likely outcome is that they expire with zero value and certainly consider the probability that you will sell them at a lower price than which you bought. Hedging has a cost over the long term just as insurance has a net cost over the long term. The argument should be over whether VXX is a tool that is inefficient or too costly rather than whether there is a cost to hedging.

     

    My experience has been that VXX options can replace some of my buying of specific puts or address portfolio concerns (mainly broad, global event risk) when I will not actively manage my portfolio. I suggest any moderately active investor should try buying 100 VXX shares at the current price level and buy/sell VXX options to get a cheap education and feel for the issues. For example, buy 100 VXX at $11.25 Sell a Jan 13 $15 covered call at $1.15 - Buy a Jan 2013 put at $8 for $.45. Yes, you can lose about $375 if VXX falls to $8 but I would predict that if you have an underlying portfolio of stock that it will being doing OK and markets will be settled and bullish. If you are in the money on the call at maturity, you probably will have suffered some deterioration in your underlying equity portfolio.

     

    One thing that you will see is the concentrated spiking upwards and relatively slow descent back to 10 -15 range. You will see when studying charts that it is normal that the cost of going into VXX is quite high when panic has already rattled the market.
    17 Aug 2012, 01:42 PM Reply Like
  • Fatherguido
    , contributor
    Comment (1) | Send Message
     
    As others have pointed out, VXX is not a buy and hold investment like CO, MSFT, or whatever. It is a tool, a specialty device. If you don't realize how it works with constant rolling of it's underlying components, it only spotlights your ignorance. The VXX is a great tool. If you don't like it, buy an inverse instrument like XIV or whatever.
    17 Aug 2012, 04:12 PM Reply Like
  • Clayton Rulli
    , contributor
    Comments (2510) | Send Message
     
    how does the XIV function more efficiently than the VXX? I feel the risks of most of these ETNS are similar
    17 Aug 2012, 10:14 PM Reply Like
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