Wednesday, May 6, 2009

Bullish on VXX

All the preannouncements have taken most of the uncertainty out of the unveiling of the bank stress test results and not surprisingly, volatility has collapsed. With the VIX at 32.53 and VXX last trading at 85.19, this looks like a good time to get long VXX and/or VIX options.

[source: BigCharts]

Disclosure: Long VIX and VXX at time of writing.

14 comments:

stonebat said...

i agree with you on the intermediate trend... but im still keeping my powder dry. still waiting for panic buying day. i believe big boys can bring down vix below 30... temporarily to set the stage for panic buying day. then i would short. come on big boys!!!

Anonymous said...

Why doesnt anyone think we can have structurally lower volatility from now on ?

Why does volatility have to go up ?

stonebat said...

just playing contrarian. thats all. i could get wrong. i say theres good chance for vix to go up... but it doesnt HAVE TO go up just because i say so. thats wrong mentality...

Bill Luby said...

Not to sound like the proverbial two-handed economist, but I do think we are about to enter a period of structurally lower volatility (and that is the exact phrase I would use), however, I think the markets are going to put a dent in the V-shaped chart pattern and reverse some of the recent gains before volatility can stay under 30 for any extended period.

Keep in mind that there has still not been any higher low printed on most of the index charts.

Now if stonebat would just chant a little louder, maybe the markets will listen...

Cheers,

-Bill

stonebat said...

i will never chant to mr.market. hes psychopathic. hehe. suppose i short on the next big volume day then markets begin tanking next day. am i making paper gain because i was "right"? no. that just means i was lucky to stand next to the smart monies that r truly moving the markets. so im like, 'i think this is what the psychopath must be thinking...'

Brooklyn Sven said...

Bill,

Can you please clear something up for me about VXX? Last time you suggested going long VXX the VIX was also approaching 32 or so and VXX was around $91-92 I think. That was less than 2 weeks ago. Given that VXX is around $85 now, is there some huge decay embedded in VXX? If so how does it work? How/when does VXX roll the front month contract it tracks, if that's the issue, and what are the gamma decay effects of holding VXX for more than 4-5 days?

Given your piece about how VXX captures only about 1/2 of the percentage movement in VIX actual options a fast price decay rate would seem like a fatal limitation.

Shanky said...

nice site - first time here. I have a view of the VIX as well. My thought is - are they pusing for sub 30 to help the declaration of the end of the recession?

http://shankystechblog.blogspot.com/2009/05/vix-throwunder-ending-formation.html

Eric said...

stonebat
I think most things are setting up for a pullback... we could be in for a slow summer grind. The big boys, whoever they are, are waiting for a pullback. Several key areas are setting up for cup and handle, while others are showing signs of near-term key MA crossovers. No doubt in my mind we are going to see lower VIX in the 2nd half

Bill Luby said...

Sven,

Great questions. I'll do my best to make the issues you raise the subject of my feature post for tomorrow.

Shanky,

Interesting charts on your blog. Thanks for the link.

A sub-30 VIX would make for a compelling headline (for those who follow these things), but I think we would still need for some of the fundamental data to make their own V-shaped recoveries before that any sort of end of recession declaration would hold water.

The VIX terms structure suggests that low volatility is here to say, but I am not yet convinced.

-Bill

Anonymous said...

The markets are behaving so irrationally these past couple months you could play in a casino and get better results. I'm staying out of this until the mania subsides. This market reminds me of 1999 all over again.

fat tony said...

What I consider to be tradable about the recent volatility action is not the absolute (low) level of the vix (or in my case vxn), but the speed with which volatility has contracted.

Anonymous said...

Although WFC and BAC both rose crazy today, the dollar amount of their call selling (for May and June) far surpassed the dollar amount of their put selling in both cases. Very interesting.

stonebat said...

Eric,

im neither buying more nor selling now. definitely im not shorting now. i wont be surprised if spx reclaims 1K mark. at this point i have no idea how much the expected panic buying can bring up the market. right now theres no such sign. when the tide turns around, i expect increase in hedging before the market tanking. theres no such sign yet. good luck.

Anonymous said...

I think we may be going back to the "devil's bottom". My analysis of SPX options shows by this summer we could be at SPX 666 again. This corroborates what Todd Harrison said on Yahoo! that 2009's stock market will be "W"-shaped -- a double bottom. (Check "http://finance.yahoo.com/tech-ticker/article/239179/More-Short-Term-Gains-Likely-But-Harrison-Sees-5-Reasons-for-Caution-Ahead?tickers=%5EDJI,%5EGSPC,SPY,DIA,XOM,BAC,XLF" for Harrison's comment.)

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