If you are interested in the VIX and related options and futures products, 2010 saw the arrival of an excellent new blog which is all over that space: Volatility Futures & Options.
The content is of such consistently high quality that I have made a mental note to feature some of it here from time to time and today seems like a good day to kick things off. The reason for my enthusiasm is a post from this morning called Case Solved: No Arbitrage, which follows a previous post on the subject: VXX-XXV Arbitrage?
I have probably received hundreds of questions and comments related to the advisability of shorting VXX and some of the obstacles in being able to execute such a strategy successfully. With the arrival of XXV, some investors thought that the inverse version of VXX might be a better way to accomplish the same goal. As it turns out, XXV has not performed as well as a short VXX position and Case Solved: No Arbitrage dives into the math and reverse engineers an excellent formula for calculating just how XXV performs relative to a short VXX position. I highly recommend clicking through to review the details.
Finally, I have noted on a number of occasions, including at some length in my subscriber newsletter, that the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) is a better product for replicating a short VXX position than XXV. Investors have yet to arrive at the same conclusion as I have that 2011 will mark “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,” but I am standing by my prediction and watching with interest to see how long it takes for money to start flowing into XIV.
- Impressive Launch for Sextet of New Volatility ETNs from VelocityShares
- VelocityShares Jumping in to VIX ETP Space with Leveraged and Inverse Products
- The Evolving VIX ETN Landscape
- XXV Has Arrived!
- XXV and the New VIX ETN Landscape
- VIX and More and the 2011 Bespoke Roundtable