Friday, February 20, 2009

VXX Tracking VIX at 80+% Today

As I write this, the VIX is at 51.30, up 9% and VXX is at 116.40, up 7.5%.

I continue to get quite a few questions about VXX, the VIX ETN. The biggest issues, by far, seem to be around how well VXX tracks the VIX and how much juice to expect from VXX relative to the VIX.

As best I can determine, when there are small day to day changes in the SPX, VXX should reflect, on average, approximately 35-40% of the daily change in the VIX. In more volatile markets, such as SPX daily changes of 3% or more, VXX should move, on average, about 55-60% as much as the VIX does. (Of course, on average, if you walk down the middle of a two way street you won’t get hit by oncoming traffic, but deviate to one side or the other even briefly…)

For more information on the movements of VXX and the VIX, check out Directional Exposure to Volatility Via Listed Futures: S&P 500 VIX Short-Term Futures Index, authored by Gareth Parker, Gerlinda Liu and Keith Loggie of Standard & Poors.

1 comments:

Damian said...

Bill - did you see this piece over on RipeTrade?

http://ripetrade.blogspot.com/2009/02/vix-allocation-as-hedge-part-2.html

Pretty interesting stuff if the VXX tracks fairly well with the VIX. My concern, of course, is that the history of the VXX is too short and we don't know what will happen.

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