Friday, December 31, 2010

In 2010 I Learned That…

Josh Brown of The Reformed Broker has an excellent post up today, In 2010 I Learned That…, in which he aggregates a wide variety of market perspectives from his broad network. The results have a large dollop of market wisdom, yet are spiced with the type of humor and satire that is a hallmark of Josh’s efforts.

When asked for some input about what I learned in 2010, my immediate reaction what that I hadn't learned as much in 2010 as I had in 2009 and 2008. After a moment of reflection, five ideas tumbled out of my head, in the following order:

  1. Substantial profits can be made from surfing the bleeding edge of Wall Street's product development engine (this is the one Josh chose to include in his post)
  2. The more confident you are in the value of your primary strategies, the more difficult it is (should be) to pull the trigger on other strategies/trades with less impressive or uncertain prospects
  3. There is a huge desire for investors to understand the VIX futures term structure and its implications
  4. When you combine ETFs and options, almost any possible trade idea can be implemented
  5. A good portfolio is one that funds a good vacation without the need for frequent monitoring of positions (my wife’s favorite of this group)
[As an aside, while Josh has a penchant for nailing the humorous side of the investment world, his On a Personal Note… from yesterday shows his talent for writing about the poignant as well.]

Readers, what have you learned in 2010? Feel free to hit up the comments…

Related posts:
Disclosure(s): none

Thursday, December 30, 2010

Top Posts of 2010

It is hard to believe that I have been blogging for four years. Initially I just thought I’d take a couple of minutes during the slow period of the trading day to capture a thought or two for archival purposes, but that original intent has continued to morph into something far beyond what I imagined.

These days most of what I post is for the benefit of readers rather than to aid my personal recollection, but I like to keep things eclectic, provocative and visually interesting for the benefit of all.

The end of the year is a great time to reflect on what readers have found to be of interest at VIX and More. Each year new themes seem to emerge among the top 25 most read posts in this space. This year the dominant themes seem to incorporate the VIX-based ETNs (specifically VXX), contango, the VIX futures term structure and put to call ratios. The #1 post of the year, The Education of a Trader, is one of the few times I have talked about my own trading, but I imagine it is the universality of the message that struck a chord with most readers.

[I hope it goes without saying that clicking on any of the hyperlinks above will pop up a list of all posts I have tagged with that label.]

Thanks to all who have contributed in one way or another to the content here. I like to say that not every day shows a profit, but every day should make you smarter, which will help the bottom line in the days and weeks ahead.

  1. The Education of a Trader
  2. Chart of the Week: VXX vs. VIX
  3. Chart of the Week: CBOE Equity Put to Call Ratio Nears All-Time Low
  4. Rule of 16 and VIX of 40
  5. VIX Futures Contango Soars
  6. Chart of the Week: VXX Celebrates One Year of Futility
  7. Short-Term and Long-Term Implications of the 30% VIX Spike
  8. VIX Futures Contango Bubble
  9. Largest Pullback Since March 2009 Rally Began
  10. Chart of the Week: Total Put to Call Ratio
  11. Yesterday’s Unusually Low ISEE Equity Call to Put Ratio
  12. VXX 1-4 Reverse Split Reminder, After Today’s Close
  13. Chart of the Week: Ten-Year Treasury Note Yield
  14. Charting the Selloff with an Andrews Pitchfork
  15. Direxion and S&P Bring Dynamic Volatility Hedging to ETFs with VEQTOR
  16. VIX Approaches Pre-2008 Record Highs
  17. SPX Pullback Now Second Largest Since March 2009
  18. XXV and the New VIX ETN Landscape
  19. Some Favorite ETF Sites
  20. SPX Historical Volatility at Two Year Low
  21. Chart of the Week: The Flight-to-Safety Trade
  22. Mamis Overbought-Oversold Indicator
  23. VIX Futures: What Were/Are They Thinking?
  24. Bears Emboldened By Low CBOE Equity Put to Call Ratio
  25. Technical Resistance Looms in the S&P 500 Index
For more on related subjects, readers are encouraged to visit the posts tagged with the label archival or check out:
Finally, I have tagged a select group of posts (including six from 2010) as worthy of a somewhat arbitrary “hall of fame” designation. These are all posts in which, regardless of popularity, I believe the content reflects some of the best efforts on this site.

Disclosure(s): short VXX at time of writing

Wednesday, December 29, 2010

VIX Futures Brokers

In light of my comments about MB Trading yesterday, a reader was quick to point out that MB Trading does not offer VIX futures.

For those who may be interested, the CBOE Futures Exchange (CFE) maintains a current list of VIX futures brokers which I have reproduced below:

Futures Commission Merchants (FCMs)

Introducing Brokers (IBs)

Clearing Firms

  • Advantage Futures
  • Bank of America
  • Barclays Capital Inc.
  • BNP Paribas
  • Citigroup Global Markets Inc.
  • Credit Suisse
  • Deutsche Bank
  • Electronic Brokerage Systems LLC
  • Fimat
  • Fortis Clearing LLC
  • Goldman Sachs Global Clearing & Execution
  • Interactive Brokers
  • J.P. Morgan Futures Ltd.
  • Man Financial
  • Merrill Lynch Pierce Fenner & Smith
  • Morgan Stanley & Co. Ltd.
  • Newedge USA LLC
  • Nomura Securities
  • O'Connor & Co. LLC
  • Pax Clearing
  • Prudential Bache Commodities, LLC
  • RBC Capital Markets
  • Timber Hill
  • Tradelink
  • UBS Securities Ltd.
  • Vision Financial Markets

For those who have been drawn into the world of VIX futures as a result of the growth of VIX-based ETNs, perhaps 2011 will be the year to trade VIX futures directly, rather than through various exchange-traded products.

Related posts:

[source: CBOE Futures Exchange (CFE)]

Disclosure(s): the CBOE is an advertiser on VIX and More

Tuesday, December 28, 2010

MB Trading Actively Screening New Customers?

I do my best to maintain accounts with a wide variety of brokers, particularly with those who are partial to options traders, in an effort to get a sense of how various tools and platforms are evolving at the broker level, keep up to date on educational offerings, etc.

In the last year or two, I have opened new accounts at tradeMONSTER and OptionsHouse and have had very positive experiences with both brokers. One broker that I have been meaning to try for awhile is MB Trading, which has been a top performer in the Barron’s online broker rankings (with additional details here) for the past few years.

Much to my surprise, when I heard back from MB Trading today it was to request more details related to my employment and the like. Keeping in mind that any broker new account application for options and futures trading has a comprehensive list of questions related to employment, assets, trading experience, etc., but for the first time out of perhaps 15-20 new account applications I discovered a broker that was intent on conducting additional due diligence over and above what is covered by the standard application. I have to assume this development is specific to MB Trading and I applaud this effort. It is always nice to know that a place where I put my money uses some discretion in the money they accept from others.
 
[Note that Theresa Carey, who authored the Barron’s online broker rankings, also maintains an excellent blog, Investor Brain, where she discusses the latest developments in the online broker space, in terms of functionality and features, as well as industry-level issues.]

Related posts:

Disclosure(s): none

Monday, December 27, 2010

Chart of the Week: U.S. Retail Gasoline Prices

As more and more data points begin to suggest that the green shoots of months past are finally showing signs of developing, concerns about supply and demand in the energy space are starting to heat up again.

In the past week, the average retail price of gasoline in the United States shot up to $2.98 per gallon (and $3.29 per gallon in my home town of San Francisco, but who’s counting?) to a post-crisis high.

This week’s chart of the week shows 21 years of retail gasoline prices in the U.S. (blue line) plotted against a backdrop of the S&P 500 index (gray area chart.) Note that gasoline prices peaked in July 2008 at $4.11 per gallon and fell all the way to $1.61 per gallon by the end of the year, less than six months later.

Not surprisingly, gasoline prices peaked after stocks did and followed stocks down during the financial panic. Interestingly, gasoline actually bottomed about 2 ½ months before stocks and the two have been tracing a very similar pattern back up toward previous highs during the course of the past two years.

Going forward, continued increases in gasoline prices should begin to put pressure on consumer spending and slow down economic growth and the rebound in stocks. Whether this phenomenon begins to show up just on the other side of $3.00 per gallon or at much higher levels remains to be seen, but it is an important factor in the ability of consumers to repair their balance sheet, increase their spending, and power the 70% of the GDP that relies on consumer spending to drive growth.

Related posts:


[source: Energy Information Administration]

Disclosure(s): none

Wednesday, December 22, 2010

VIX and the Week Before Christmas

I guess I should not be surprised that a VIX of 15.45 – the lowest since July 2007 – has all manner of pundits scrambling to pull some sort of explanation out of a hat and weave it into their favorite bullish or bearish forecast for the markets.

In fact, the new low in the VIX is not a big deal, at least during this time of the year. I have talked about this before on a number of occasions, including in VIX Holiday Crush and earlier this week in Chart of the Week: Historical Volatility Plummets in Seasonal Swoon. Call it the holiday effect or calendar reversion, but when the VIX’s 30-day window includes two holidays and two additional historically slow days in advance of the Christmas and New Year’s holidays, volatility has a tendency to take a vacation.

How strong is the tendency toward a low VIX? Well, consider that in five of the last eight years, the annual low in the VIX fell during the week leading up to Christmas. Last year, some may recall that the VIX made its annual low on Christmas Eve. Back in 2004, the VIX had its low for the year on December 23rd; and in both 2003 and 2006, the VIX bottomed out for the year on December 18th. Today’s low makes it five pre-Christmas bottoms in eight years.

So keep a close eye on the VIX and feel free to marvel at how low it goes, but consider that during the holiday season, experienced investors will give very little credence to the absolute level of expected 30-day implied volatility in S&P 500 options. Only after the first of the year should we take the VIX numbers seriously, regardless of how low prices and implied volatility levels may be marked down in the pre-Christmas shopping rush.

Related posts:

Disclosure(s): none

Tuesday, December 21, 2010

Expiring Monthly December 2010 Issue Recap

A reminder that the December issue of Expiring Monthly: The Option Traders Journal was published yesterday and is available for subscribers to download.

This month’s issue has a feature article from Mark Sebastian on the future of options exchanges. On a related subject, Mark Longo interviews Gary Katz, President and CEO of the International Securities Exchange (ISE).  Additional subjects covered in the magazine include how market makers use volatility to update their quotes, delta hedging, analyzing opening gap tendencies, payment for order flow, directional vs. non-directional strategies, the role of luck and skill in trading, and a review of Ron Ianieri’s recent options book.

I contribute two articles to the December issue. Unintentionally blurring zoomorphism with mythology, one article is based on a trade I call “the Minotaur” while the other has earned the name of “the Swan Catcher.” The Minotaur turns out to be a VIX-VXX pairs trade and here I embark on a proof-of-concept approach. The Swan Catcher trade also represents something of a bottoms-up approach to developing options strategies. In part one of a two-part series, I seek a way to structure options positions to profit from extreme moves in the market, without losing too much money while one waits for these events to occur.

As is now my habit, I have reproduced a copy of the Table of Contents for the December issue below for those who may be interested in learning more about the magazine. Thanks to all who have already subscribed. For those who are interested in subscription information and additional details about the magazine, you can find all that and more at http://www.expiringmonthly.com/.

Related posts:


[source: Expiring Monthly]

Disclosure(s): I am one of the founders and owners of Expiring Monthly

Monday, December 20, 2010

Chart of the Week: Historical Volatility Plummets in Seasonal Swoon

‘Tis the season for the annual holiday effect in which historical volatility (HV) has a strong tendency to plunge and drag implied volatility down with it. This is a subject I have tackled on a number of occasions in the past (see links below) and is really just a longer variant of what I call calendar reversion – the tendency of the VIX to fall an extra 1% or so on Fridays due to market makers adjusting prices ahead of the weekend. The lack of volatility all boils down to the same root cause: fewer trading days during the 30 calendar day window specified by the VIX (and implied volatility in general) means there are fewer opportunity for stocks to stray significantly from the path projected by efficient markets, standard deviations and the rest of the normalcy regime.

As of Friday’s close the S&P 500 index had a 10-day historical volatility of 5.5, which is the lowest reading since May 2007. In this week’s chart of the week below, I have elected to show the 10-day historical volatility of the Russell 2000 small cap index (RUT), which traditionally has higher volatility than the SPX and is also more susceptible to the winds of economic change and uncertainty. As the chart shows, 10-day historical volatility (white line) sits at a two-year low and has helped to pull the implied volatility (red line) of the index down below 20. Note that last week the CBOE Russell 2000 Volatility Index (RVX) dipped as low as 19.55 and is threatening to drop below the 19.00 level for the first time since June 2007.

After the first of the year I expect to see the holiday effect magically disappear and HV, IV and volatility indices begin to reflect a more accurate view of investor expectations.

Related posts:



[source: Livevol.com]

Disclosure(s): Livevol is an advertiser on VIX and More

Friday, December 17, 2010

VIX and More and the 2011 Bespoke Roundtable

For the second year in a row, I have elected to stick my neck out and make my best guess at what the investment world will look like in the coming year in conjunction with the Bespoke Investment Group’s second annual roundtable.

As someone who has a tendency to focus almost all of my predictive powers on the next two options expiration cycles, I find that forcing myself to think in terms of a one year time horizon is a daunting task. Still, just going through the process and committing some ideas to paper makes this exercise worthwhile and fun.

Frankly, I was surprised by how accurate many of my predictions from last year turned out to be and for better or (more likely) for worse, this has emboldened me to be even more provocative and more specific this year, including some outrageous comments about AAPL.

More to the main theme of this blog, I think readers may find the following predictions for 2011 to be of interest:

2011 will mark the rise of volatility as an asset class.  Part of the reason for this rise will be the runaway success of VIX-based ETNs and ETFs, notably the recently launched XIV, which will prove that volatility vehicles can be good buy-and-hold investments.  XVIX will also prove to be a popular and successful buy-and-hold ETN and once liquidity improves, TVIX will hit a tipping point and become the darling of day traders.”
All in all, a dozen top bloggers offered up their predictions for 2011. Bespoke has assembled some of the highlights from the responses here.

Additionally, there is a to the the full text of my replies to all 34 questions about 2011 here.

For those financial anthropologists in the crowd, the highlights for the 2010 roundtable are here and my archived predictions for 2010 are here.

[12/19/10 Update:  note that there were several incorrect links to Bespoke that have since been corrected ]

Related posts:

Disclosure(s): long XIV and XVIX at time of writing

Thursday, December 16, 2010

VIX and Put to Call Ratio Snapshot

There has been a good deal of discussion about recent high put to call ratios across the blogosphere lately, including in my post yesterday, Rohan Clarke on the VIX and Put to Call Ratios.

Given all the interest in the subject, I thought it would be an opportune time to share a simple chart of both that I often refer to. The graphic below captures the VIX (solid black line) and a 10-day exponential moving average of the CBOE equity put to call ratio (CPCE), which is show as a dotted red line.

Note that these two indicators are generally highly correlated. They both hit extreme lows in April, just before stocks began to correct – hence the concern about the current situation. The recent levels mark the second lowest readings of the year and may also portend a reversal. It is important to note, however, that the VIX can remain low for an extended period and also indicate nothing more than the fact that investors are comfortable accepting more risk. Also, the 10-day EMA of the CPCE is showing some signs that the recent extreme reading may self-correct before the bears are able to generate any significant traction. Finally, seasonal factors have a tendency to distort both indicators and often point to short-term holiday complacency rather than any sort of conviction that is expected to persist into 2011.

Related posts:




Disclosure(s):
none

[source: StockCharts.com]

Wednesday, December 15, 2010

Rohan Clarke on the VIX and Put to Call Ratios

With the favorable response I received on two recent posts, Edward Hugh and a Fistful of Euros and Market Psych Offers Language-Based Fear Index, I thought it might be a good time to highlight the work of another blogger who I believe deserves a wider audience and whose content nicely complements what readers can find here.

The blogger is Rohan Clarke and his blog is known as Data Diary and also carries the tag line, “An investor’s diary of economic data, corporate earnings and market sentiment.” While Clarke is based in Australia, his posts betray a broad range of geographical and intellectual interests. His latest missive, from earlier today, Betting on Zero, tackles inexpensive portfolio hedges, the VIX and put to call ratios.

For another insightful blog from Down Under, readers might also wish to check out billy blog, where I can guarantee that Bill Mitchell’s take on the global economy and economic issues in Australia will give you something to think about, whether you agree with his perspective or not.

Related posts:


Disclosure(s): none

Tuesday, December 14, 2010

Treasury Yield Curve ETNs and Volatility

The subject of the VIX and Treasury yields is one I have probably not explored in sufficient detail in this space, so with some recent developments, this seems like a good time to dive into that subject.

One big reason for my interest is the recent rapid steepening of the Treasury yield curve. Another is an excellent article on two yield curve ETN plays from Timothy Strauts of Morningstar: How to Take Advantage of a Steep Yield Curve. In the article, Strauts discusses two ETNs from iPath that are designed to take advantage of a yield curve that becomes steeper or flatter. The ETNs are known formally as the iPath US Treasury Steepener ETN (STPP) and the iPath US Treasury Flattener ETN (FLAT). These innovative and exciting ETNs hold 2-year and 10-year Treasury futures and are rebalanced monthly. In many respects they represent the latest generation of what I refer to as strategy-in-a-box ETPs.

Launched in August, STPP and FLAT have started to attract some attention in the last few weeks, as Treasury yields have become more volatile.

There is not yet much of a track record, but I will be interested to see how the movements in STPP and FLAT interact with movements in the VIX. For an initial pass, I have chosen to look at STPP and FLAT in conjunction with SPY and VXZ. (Note that I chose VXZ here in order to sidestep the strong contango in the VIX futures term structure that exacerbated the price decline in VXX as of late.)

The chart below shows the performance of the yield curve ETNs since their August 10th launch. Note that so far – and particularly as of late – it has been FLAT which has been more positively correlated with changes in implied volatility expectations as measured by VXZ. On the flip side, STPP has demonstrated a higher positive correlation with stocks, at least as reflected in SPY.

Going forward, I will provide periodic updates on my observations between changes in the Treasury yield curve in the VIX and also take up the subject of how the Treasury yield curve might be able to predict the future of the VIX.

Related posts:



[source: ETFreplay.com]

Disclosure(s):
short VXX at time of writing

Monday, December 13, 2010

Chart of the Week: Banks on a Tear

There were many cross-currents in the financial markets during the last week, but one of the dominant themes was the spike in Treasury yields. As expectations for interest rates move higher, the banks are also catching a bid. Long able to borrow at Bernanke-induced artificially low rates, now banks are finding better prospects on the lending side – and have the added bonus of a larger yield spread on their loans as interest rates start to climb.

These factors make banks the focal point of this week’s chart of the week. In the graphic below, note that the upper study shows banks have been consistently underperforming the S&P 500 index for the past seven months. In the last week, however, banks have shown a dramatic turnaround that has lifted KBE, the popular bank ETF, above resistance (dotted blue line) and also reversed the trend of outperforming the broader market.

As was the case in 2010, the performance of the banks will be a critical factor in the performance of the broader market in 2011. Said another way, banks will continue to be a critical barometer not just of global growth, but of the ability of various economies to deal with threats to growth, such as sovereign debt and other issues.

Related posts:


[source: StockCharts.com]

Disclosure(s): long KBE at time of writing

Thursday, December 9, 2010

VIX Futures Now Opening at 8:20 a.m. ET

Effective tomorrow, December 10th, VIX futures will be open for trading as of 8:20 a.m.

"Extended trading hours for VIX futures will give investors the ability to more efficiently mitigate risk and establish or offset positions that may be impacted by potential market-moving events such as overnight news, banking actions, or key economic reports released prior to the general market open," explained Andrew Lowenthal, Managing Director, CBOE Futures Exchange.

Of course VIX futures are the underlying security for all VIX options and exchange-traded products.

For more information, check out the CBOE Futures Exchange (CFE) press release.

Wednesday, December 8, 2010

Market Psych Offers Language-Based Fear Index

Aside from the VIX, there are quite a few fear indices out there. Just a couple of months ago, for example, I was extolling the virtues of the St. Louis Fed’s Financial Stress Index.

One of the more interesting ones that I have not seen get much in the way of media attention is the Market Psych Fear Index. This index is constructed by using a 10-day exponential moving average of the percentage of “fear” words in the U.S. financial news. In the chart below, the Market Psych Fear Index is the solid blue line and the candlesticks are the NASDAQ-100 index (QQQQ).

As the construction of this fear index is based on language in the financial media, the fear index makes it possible to compare market-based fear measures such as the VIX and other volatility indices with the degree of public concern or perhaps even fear mongering found in the media.

One would expect that the Market Psych Fear Index and stocks to generally move in opposite directions, just as is the case with the VIX and stocks. While this is the case more often than not, the chart below shows that in the last month or so, as stocks have been rising, the movements in stocks and the Market Psych Fear Index have been positively correlated. What does this mean? Perhaps all the talk of the European sovereign debt crisis and North Korean aggression is starting to wear thin. Perhaps the media is not quite able to stir up fear like it has in the past. Of course, perhaps Occam’s razor would say that investors are being naïve.

In any event, VIX futures are predicting that the VIX will rise almost 50% by the middle of 2011.

At a minimum, I think the divergence between market-based and language-based fear indicators bear further watching.

Finally, the Market Psych web site has some interesting content, not the least of which is sentiment-based analysis of stocks and ETFs, but also an excellent collection of free personality tests for traders and investors.

Related posts:




[source: MarketPsych.com]

Disclosure(s): neutral position in VIX via options at time of writing

Monday, December 6, 2010

VIX Put Matrix Offers Glimpse of Expected Future

In yesterday’s, Chart of the Week: VIX Support, I made a statement that several readers have had some difficulty putting their arms around.

Specifically, I noted:

“VIX puts are extremely inexpensive right now and one can actually buy VIX puts for March, April and May of 2011 for less than half the price of what the December 2010 puts are currently being offered.”
This strange, but true phenomenon arises because of the confusion over the underlying for VIX options. At the moment VIX options expire, the underlying for the options is indeed the cash/spot VIX. Prior to expiration, however, the appropriate underlying to focus on is the VIX futures. With the VIX currently at about 18 and the VIX futures for the middle of 2011 approximately 50% higher at 27, the VIX futures term structure actually reflects a different underlying for each month of VIX options and futures.

The graphic below summarizes some of the consequences of the steep VIX futures term structure for VIX options. By means of illustration, note that the VIX December 18 puts can be bought for 0.85. The same puts in for March, April or May 2011, however, can be purchased for less than half that price, as I noted yesterday. The explanation is simple: when investors expect the VIX to be at 27, the VIX 18 puts are going to be a lot cheaper than when the VIX is at 18.

For comparison purposes, refer to a similar VIX put matrix from April 2009 that appeared in Selling VIX Puts with the Help of a VIX Put Matrix. At that time, stocks had formed a major bottom the previous month and the consensus expectation was that volatility would be on the decline. For this reason, with the VIX at 34.82, any puts that were “in the money” (in terms of the cash/spot VIX, not vis-à-vis the VIX futures) were more expensive the farther one goes out in time.

With VIX options, the key ingredients are almost always the VIX futures term structure and what it implies about mean reversion expectations.

Related posts:

[source: optionsXpress.com]

Disclosure(s): neutral position in VIX via options at time of writing

Sunday, December 5, 2010

Chart of the Week: VIX Support

In this week’s chart of the week, I have created a chart of the VIX going back to June 2007 which uses weekly bars to show that just about the time stocks made their 2007 pre-crisis highs, the VIX was establishing the 17-18 area (yellow bar) as a zone of support.

During the past three plus years, the VIX has frequently found support in the 17-18 zone before bouncing higher. In fact, the one time the VIX has made its most impressive break below the 17-18 zone was back in April, just before the European sovereign debt crisis hit and pushed the VIX all the way up to 48.20, which just happens to be the highest VIX level recorded outside of the financial crisis of 2008-2009.

For this reason, VIX puts are extremely inexpensive right now and one can actually buy VIX puts for March, April and May of 2011 for less than half the price of what the December 2010 puts are currently being offered.

Related posts:


[source: StockCharts.com]

Disclosure(s): neutral position in VIX via options at time of writing


Friday, December 3, 2010

Economic Data Frozen Until Next Thursday

Today’s data dump of nonfarm payrolls, the ISM non-manufacturing survey and factory orders caps a big week for economic data and since there is an unusually long stretch until the next data points are released ( next Thursday’s jobless claims), this seems like a good time to update my ongoing chart of economic data relative to expectations.

The last time I updated this chart, in late October, I observed, “There has been a noticeable uptick in positive reports since the beginning of September – one that just so happens to coincide with the upturn in stocks.” Today’s nonfarm payrolls report notwithstanding, the pattern of positive surprises has been repeated through November and into the first week of December. While employment continues to be the biggest story, the recent uptrend in the consumer and resurgence in manufacturing mitigates some of the bad news on the labor front and hints at the possibility of a job market that may show signs of improvement soon.

The other big story in this chart is that as bad as housing and the construction market seem, the data has consistently been coming in higher than the lowered consensus expectations.

Finally, it is rare that there is dearth of data in the U.S. for such an extended period of time. Among other things, this lack of new data points means that any investing trends that are currently in place will have little in the way of evidence to undermine their validity during the next week. It also means that the Fed will have little in the way of additional new information in front of them when the FOMC meets on Tuesday, December 14th.

Related posts:


Disclosure(s): none

Wednesday, December 1, 2010

Two More VIX ETNs Makes It a Baker’s Dozen

In addition to the six new VIX-based ETNs launched yesterday by VelocityShares, two new VIX-based ETNs also traded yesterday for the first time.

Barclays added VZZ to their product lineup, bringing the total number of Barclays products in the space to five. VZZ is essentially a +2x version of VXZ, with a target maturity of five months.  VZZ is the first leveraged volatility ETN from Barclays and is interesting in that the absence of a corresponding +2x VXX product suggests Barclays does not see the need for a leveraged VXX equivalent or perhaps finds the combination of leverage and high contango at the front end of the VIX futures term structure to be a daunting combination.

Elsewhere, UBS makes its entry into the VIX-based ETN fray with a huge splash. Their new product, XVIX, ups the innovation ante by combining a 100% long position in the S&P 500 VIX Mid-Term Futures Excess Return Index with a 50% short position in the S&P 500 VIX Short-Term Futures Excess Return Index. Translated into Barclays terms, this would be roughly the equivalent of two units long VXZ and one unit short VXX. Depending upon the shape of the VIX futures term structure, UBS is hoping that XVIX will benefit from contango and also get a lift from an increase in volatility. The performance of XVIX going forward will be particularly interesting to watch.

I would expect the land grab in the volatility ETP space to settle down for a little while as investors evaluate the new menu of options.  In the meantime the chart below should help.  I have grayed out those products which have been announced, but not launched.

The most difficult part may be unlearning Roman numerals in the process. I’m sure on some trading floor, however, some joker is yelling out, “I’m long 25 and 15, but short 70.”

Related posts:


Disclosure(s): short VXX at time of writing

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