The first day of trading in the VIX ETNs was an unqualified success. Volume in the iPath S&P 500 VIX Short-Term Futures (1 month) ETN (VXX) hit 215,700 shares, while its 5 month counterpart, (VXZ), traded 73,900 shares.
To put these numbers in perspective, on the first day the Direxion triple ETFs were traded (in early November 2008), they registered volumes of 19,063 (BGU), 30,783 (TNA) and 10,313 (FAS). Less than three months later the least popular of the three ETFs is now consistently trading more than 10 million shares per day.
While predicting success for the Direxion ETFs looked like a no-brainer for me, the idiosyncrasies of the VIX and the VIX ETNs means that it is more difficult to guarantee superstar status for today’s new market entrants, even if they had a more impressive opening day. It may take a while, for instance, for investors to decide whether the new VIX ETNs are best suited to day trading, pairs trading, hedging, arbitrage or other strategies, but clearly VXX and VXZ have the potential to be in the top tier of the ETF/ETN trading vehicles.
In terms of relative price movement, the chart below highlights the differences between the most volatile cash/spot VIX (black line), the less volatile VXX (gold line), and the comparatively sluggish VXZ (blue line). At different times during the day, VXX moved at about 50-80% of the rate of the VIX. Not surprisingly, the longer-term sibling, VXZ, captured the overall upward trend in volatility, but was reluctant to reverse direction.
It is always difficult to draw meaningful conclusions from one day of data, but now that there are finally some VIX ETN data points to talk about, at least we can begin to extrapolate in the direction of a statistically significant universe.