tag:blogger.com,1999:blog-8974567744861538412024-03-18T03:31:54.329-07:00VIX and MoreBill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comBlogger1741125tag:blogger.com,1999:blog-897456774486153841.post-6479433602968700232022-04-28T12:02:00.000-07:002022-04-28T12:02:01.395-07:00The Latest on VXX and Additional Creation Unit Suspensions by Barclays<p>It has been 1 ½ months
since Barclays <a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">announced
the suspension</a> of new creation units in the popular iPath Series B S&P
500® VIX Short-Term Futures ETN (<a href="https://vixandmore.blogspot.com/search/label/VXX">VXX</a>). Today, we received some additional information
from Barclays in conjunction with their earnings report. </p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
In a <a href="https://ipathetn.barclays/cms/static/files/ipath/press/iPath_ETN_suspension_press_release.pdf">press
release today</a>, Barclays announced that it has suspended new creation units
in an 31 Barclays iPath ETNs in addition to the VXX and <a href="https://vixandmore.blogspot.com/search/label/OIL">OIL</a> creation unit
suspensions from March 14<sup>th</sup>.<span style="mso-spacerun: yes;"> </span>The
full list of ETNs with suspended creation units, sorted by average volume, can
be found <a href="https://finance.yahoo.com/quotes/VXX,OIL,DJP,CAPD,ATMP,JJC,GRN,JO,JJG,VXZ,JJN,BCM,GSP,GBUG,BAL,JJT,SGG,JJA,JJM,NIB,JJU,PBUG,COW,JJS,SBUG,IMLP,JJE,JJP,PGM,WIL,RODI,LD/view/v1">here</a>,
with a top five consisting of VXX, <a href="https://vixandmore.blogspot.com/search/label/DJP">DJP</a>, OIL, <a href="https://vixandmore.blogspot.com/search/label/GRN">GRN</a> and <a href="https://vixandmore.blogspot.com/search/label/JJN">JJN</a>.<br />
<br />
Barclays provided some context for what is going on behind the scenes:</p>
<blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left;"><i>“Barclays PLC
announced today that Barclays Bank plans to restate the financial statements
included in its Annual Report on Form 20-F for the year ended December 31, 2021
(the “Form 20-F”) filed with the Securities and Exchange Commission (the “SEC”)
and to amend the Form 20-F to reflect such restatement and to change its
conclusions with respect to the effectiveness of its internal control over
financial reporting and disclosure controls and procedures. <span style="mso-spacerun: yes;"> </span>Because the registration statement and
prospectus under which Barclays Bank makes sales of each series of ETNs incorporates
by reference the Form 20-F, Barclays Bank and its affiliates cannot continue to
make sales under such </i><i>registration
statement and prospectus until the restatement is completed and Barclays Bank
files an amended Form 20-F and a new shelf registration statement. Barclays
Bank expects to reopen sales of the ETNs when the amended Form 20-F and new
shelf registration statement have been filed with the SEC and will make a
further public announcement when this action is taken.”</i></p></blockquote>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In a nutshell,
we are now going to have to wait until we have an earnings restatement for FY
2021 – and the timetable for that is highly uncertain.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In today’s <a href="https://home.barclays/content/dam/home-barclays/documents/investor-relations/ResultAnnouncements/Q12022Results/20220428-BPLC-Q122-Results-Announcement.pdf">Barclays
PLC Q1 2022 Results Announcement</a> release, the company discusses the matter
in more detail in the notes section on (original numbering) pp. 29-31 and highlights the following:<br />
</p><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left;"><i>“Barclays remains committed to its structured products business in the US
and expects BBPLC to file a new shelf registration statement with the SEC as
soon as practicable following the amendment of the BBPLC 2021 Form 20-F. For
further details, please refer to the notes to the condensed consolidated
financial statements accompanying this Q122 results announcement.”</i></p></blockquote>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">This likely
means that Barclays has no intention of shutting down VXX and accelerating the
termination at the indicative value price.<span style="mso-spacerun: yes;">
</span>That said, the earnings restatement hurdle does not seem like a quick
fix, so…both longs and shorts have significant risks (see Further Reading links
below for more details) with the VXX premium to its <a href="http://vixandmore.blogspot.com/search/label/intraday%20indicative%20value">intraday
indicative value (IV)</a> (VXX.IV) currently at 13.6%.<br style="mso-special-character: line-break;" />
<!--[endif]--><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/vxx-premium-to-indicative-value-falls.html">VXX
Premium to Indicative Value Falls Slightly to 26%</a><br /><a href="http://vixandmore.blogspot.com/2022/03/vxx-upside-vs-downside-risk-with-no-new.html">VXX
Upside vs. Downside Risk with No New Creation Units</a><br /><a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays
Suspends Creation Units for VXX</a><br /><a href="http://vixandmore.blogspot.com/2021/02/attempt-at-tvixf-short-squeeze-fizzling.html">Attempt
at TVIX Short Squeeze Fizzling Out</a><br /><a href="http://vixandmore.blogspot.com/2012/12/the-resurrection-of-tvix.html">The
Resurrection of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/04/tvix-premium-to-indicative-value.html">TVIX
Premium to Indicative Value Creeping Back Up</a><br /><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX
Creation Units Return; What It Means for Investors</a><br /><a href="http://vixandmore.blogspot.com/2012/03/is-tvix-now-just-more-docile-uvxy.html">Is
TVIX Now Just a More Docile UVXY?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/recent-tvix-volume-and-vix-futures.html">Recent
TVIX Volume and VIX Futures Volume</a><br /><a href="http://vixandmore.blogspot.com/2012/02/story-of-vix-etps-relative-to-their.html">The
Story of VIX ETPs Relative to their Intraday Indicative Values</a><br /><a href="http://vixandmore.blogspot.com/2012/02/ups-and-downs-of-new-premium-in-tvix.html">The
Ups and Downs of the New Premium in TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit
Suisse Suspends Creation Units in TVIX: What it Means</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/who-is-trading-tvix.html">Who Is
Trading TVIX?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/volatility-becomes-unhinged-on-friday.html">Volatility
Becomes Unhinged on Friday</a><br /><a href="http://vixandmore.blogspot.com/2011/01/tvix-finally-getting-due-as-day-trading.html">TVIX
Finally Getting Its Due As Day Trading Rocket Fuel</a><br /><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About
UVXY</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span style="color: windowtext; text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX at time of writing<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-8979542517125141142022-04-19T10:22:00.004-07:002022-04-19T16:15:27.460-07:00SPX Weekly Options Will Soon Be Available with Expirations Every Day of the Week<p>Yesterday, the CBOE
listed the first batch of SPX <a href="https://vixandmore.blogspot.com/search/label/weeklys">weekly options</a>
with a Tuesday expiration, starting with the April 26<sup>th</sup> and May 3<sup>rd</sup>
expirations. Interest is strong, as halfway
through today’s session, there were already more than 12,000 contracts traded
for just the April 26<sup>th</sup> expiration.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Readers may recall that the CBOE began to expand from monthly SPX settlements
to add weekly Friday settlements back in 2005 and then began to embrace a
broader scope of underlying issues with weekly options in 2010, including both
<a href="https://vixandmore.blogspot.com/search/label/VXX">VXX</a> and VIX weeklys.<span style="mso-spacerun: yes;"> </span>Once the Friday weeklys
took off, the CBOE added SPX weekly options that expired on Mondays and
Wednesdays.<span style="mso-spacerun: yes;"> </span>In the intervening decade or
so, weekly options have generated a substantial following, being used for event-specific
hedging, short-term trading and day trading.<span style="mso-spacerun: yes;">
</span>Weeklys showed their market power when organized retail traders of <a href="https://vixandmore.blogspot.com/search/label/meme stocks">meme stocks</a> used weekly options to trigger <a href="https://vixandmore.blogspot.com/search/label/gamma%20squeeze">gamma squeezes</a>
that dramatically spiked the prices of the underlying stocks.<span style="mso-spacerun: yes;"> </span>For more information on this, check out an
informative CBOE article, <a href="https://www.cboe.com/insights/posts/how-meme-stocks-impact-options-trading/">How
Meme Stocks Impact Options Trading</a>.<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">While I am not likely
to use this space to advocate day trading weekly options, these options have
clearly added significantly to the trading toolbox. Looking ahead, on Wednesday, May 11<sup>th</sup>,
the CBOE will complete the suite of SPX weekly options, when they list SPX
weekly options with a Thursday expiration, likely targeting May 19<sup>th </sup>and May 26<sup>th</sup> at the outset.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">When this
happens, in less than a month, <i>there will be SPX options expiring every day
of the week!</i></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The implications
for traders and investors are substantial.
You can have options that expire on every day there is an important economic
data release, earnings report, FOMC meeting, election, astrological market
timing signal or whatever floats your boat.
For those who trade calendar spreads, diagonal spreads or are otherwise interested
in fine-tuning the time component of their options expirations, the full suite
of weeklys with daily expirations will create a great deal of flexibility in
trade structuring, trade adjustment, pricing of positions, etc. The bottom line: SPX options expiring every day of the week
will introduce a whole new set of opportunities.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">What’s
next? Do I hear any votes for hourly
options?</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p> </o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzPExkIE65Q2uw066SulUgujGCvUub6vUZbYLCW7UfR9WZbe2fJ6zOWc4eUk38Bp3oxv41PfLt4a6fflGitYs6KUgb9WmUPAWMUmVImzD_DsVLeyWXwD4UW8oOcwIPRcBVxOrzwCgD0IS_xZUxf-Q_KUWnIL4HfnWmP6o_te88zN5GhvGvcB6Qli9TDA/s1270/SPX%20weeklys%20041922.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1235" data-original-width="1270" height="622" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzPExkIE65Q2uw066SulUgujGCvUub6vUZbYLCW7UfR9WZbe2fJ6zOWc4eUk38Bp3oxv41PfLt4a6fflGitYs6KUgb9WmUPAWMUmVImzD_DsVLeyWXwD4UW8oOcwIPRcBVxOrzwCgD0IS_xZUxf-Q_KUWnIL4HfnWmP6o_te88zN5GhvGvcB6Qli9TDA/w640-h622/SPX%20weeklys%20041922.jpg" width="640" /></a></div><p></p>
<p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>LiveVol Pro / CBOE]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i><br />Further
Reading:<br /></i><a href="https://vixandmore.blogspot.com/2012/04/weekly-options-coming-on-strong.html">Weekly
Options Coming on Strong</a><br /><a href="https://vixandmore.blogspot.com/2010/08/what-difference-weekly-makes.html">What
a Difference a Weekly Makes</a><br /><a href="https://vixandmore.blogspot.com/2010/09/vix-weekly-options-coming-on-september.html">VIX
Weekly Options Coming on September 28</a><br /><a href="https://vixandmore.blogspot.com/2010/08/weekly-options-gain-momentum.html">Weekly
Options Gain Momentum</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX and VIX at time of writing; the
CBOE is an advertiser on VIX and More<o:p></o:p></span></i></p>
<p align="center" style="text-align: center;"><i><span style="mso-spacerun: yes;"> </span>[source(s):<span style="mso-spacerun: yes;">
</span>LiveVol Pro / CBOE]<o:p></o:p></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-746189878564170682022-04-14T10:29:00.002-07:002022-04-14T10:32:41.991-07:00UVXY Dominates VIX ETPs By Dollar-Weighted Volume<p>At various times
in the 13-year history of <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX ETPs</a> there
have been as many of <a href="http://vixandmore.blogspot.com/2011/11/ten-months-have-passed-since-last-time.html">30+
different versions of these VIX-based products</a> on the market. Initially, it was the +1x <a href="http://vixandmore.blogspot.com/search/label/VXX">VXX</a> that dominated
the space, later supplanted by the +2x <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a> and then the
-1x <a href="http://vixandmore.blogspot.com/search/label/XIV">XIV</a> as the
top dog. All three of these products
have run into various issues (see <a href="http://vixandmore.blogspot.com/2022/04/vix-etps-what-can-go-wrong.html">VIX
ETPs – What Can Go Wrong?</a>), with XIV dead, TVIX relegated to irrelevance and
trading by appointment on the pink sheets as <a href="http://vixandmore.blogspot.com/search/label/TVIXF">TVIXF</a> and VXX currently wounded by
regulatory issues (<a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays
Suspends Creation Units for VXX</a>).</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the wake of
all this carnage, which products are still viable? A month ago I would probably have argued that
VXX was the most important product in the space, but with VXX’s creation unit
troubles, the +1.5x <a href="http://vixandmore.blogspot.com/search/label/UVXY">UVXY</a>
ETF from ProShares is the clear market share leader, with 63.3% of the
dollar-weighted volume in the VIX ETP product space. The ProShares -0.5x <a href="http://vixandmore.blogspot.com/search/label/SVXY">SVXY</a> ETF has the
second highest dollar-weighted volume in the space at 19.4% and in third place
at 9.8% is the +1.0x <a href="http://vixandmore.blogspot.com/search/label/VIXY">VIXY</a>
ETF. VXX from Barclays has fallen to fourth
place at 5.8%. For now, the VIX ETP
space is dominated by the ProShares product suite. The two new kids on the block, the +2.0x UVIX
and the -1.0x SVIX from Volatility Shares are gaining some traction, but still
have only 0.7% dollar-weighted volume share.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the graphic below
I show the dollar-weighted volume as of yesterday’s data. Note that the top six products all have a
weighted-average maturity of one month while the two laggards, <a href="http://vixandmore.blogspot.com/search/label/VIXM">VIXM</a> and <a href="http://vixandmore.blogspot.com/search/label/VXZ">VXZ</a>, both have a weighted-average
maturity of five months.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSWd2Aye3WLDnVNwe6dSXyX0xF40Vwsc_RwkmDDwMidhyeeB0tZBFgn8qb58IkivmdCdKu0yBfqvxR-mGRJd2xZBWHgZ-thcBv1Ct0VGGDGriXhD78QEAcEXczAuQMWyJiVq1zArQzNG6P-joE3tyzPHwTAzmEw_Gx6BeNvxH7JUaX3iXxB2vu8pNHMg/s1533/Market%20Share%20of%20top%20VIX%20ETPs%20in%20dollar%20volume%20041322.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="617" data-original-width="1533" height="258" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhSWd2Aye3WLDnVNwe6dSXyX0xF40Vwsc_RwkmDDwMidhyeeB0tZBFgn8qb58IkivmdCdKu0yBfqvxR-mGRJd2xZBWHgZ-thcBv1Ct0VGGDGriXhD78QEAcEXczAuQMWyJiVq1zArQzNG6P-joE3tyzPHwTAzmEw_Gx6BeNvxH7JUaX3iXxB2vu8pNHMg/w640-h258/Market%20Share%20of%20top%20VIX%20ETPs%20in%20dollar%20volume%20041322.png" width="640" /></a></div><br /><p align="center" style="text-align: center;"><i> [source(s):
Yahoo, VIX and More]<o:p></o:p></i></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><br />
<i>Further Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/uvix-and-svix-join-vix-based-etp.html">UVIX
and SVIX Join the VIX-Based ETP Landscape</a><br /><a href="http://vixandmore.blogspot.com/2022/04/vix-etps-what-can-go-wrong.html">VIX
ETPs – What Can Go Wrong?</a><br /><a href="http://vixandmore.blogspot.com/2022/03/successful-launch-for-svix-and-uvix.html">Successful
Launch for SVIX and UVIX</a><br /><a href="http://vixandmore.blogspot.com/2017/01/vix-etps-flash-some-green-in-2016.html">VIX
ETPs Flash Some Green in 2016</a><br /><a href="http://vixandmore.blogspot.com/2016/01/every-single-vix-etp-long-and-short.html">Every
Single VIX ETP (Long and Short) Lost Money in 2015</a><br /><a href="http://vixandmore.blogspot.com/2013/10/performance-of-vix-etps-during-recent.html">Performance
of VIX ETPs During the Recent Debt Ceiling Crisis</a><br /><a href="http://vixandmore.blogspot.com/2013/08/expanded-performance-of-volatility.html">Expanded
Performance of Volatility-Hedged and Related ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/06/performance-of-volatility-hedged-etps.html">Performance
of Volatility-Hedged ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/04/performance-of-vix-etp-hedges-in.html">Performance
of VIX ETP Hedges in Current Selloff</a><br /><a href="http://vixandmore.blogspot.com/2011/11/ten-months-have-passed-since-last-time.html">Slicing
and Dicing all 31 Flavors of the VIX ETPs</a><br /><a href="http://vixandmore.blogspot.com/2011/01/charting-assets-of-volatility-based.html">Charting
the Assets of the Volatility-Based ETPs</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX, UVIX and UVXY, net long SVIX at
time of writing<o:p></o:p></span></i></p>
<p align="center" style="text-align: center;"><i><span style="mso-spacerun: yes;"> </span><o:p></o:p></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-36446609319565668072022-04-04T11:29:00.010-07:002022-04-14T10:29:51.946-07:00VIX ETPs – What Can Go Wrong?<p>For many years,
I’ve had a tagline at the bottom of my email: “In volatility there is
opportunity!” The tagline is a reminder
that when things look darkest in the financial markets, this is often an area
of maximum opportunity.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">On the other hand, the <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX ETP</a><span class="MsoHyperlink">s</span> have quite a few quirks and as a result of these quirks
and their high volatility, there are considerable risks for both longs and
shorts.<span style="mso-spacerun: yes;"> </span>How much risk?<span style="mso-spacerun: yes;"> </span>Quite a lot.<span style="mso-spacerun: yes;">
</span>Consider that on a split-adjusted basis, the +2x long <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a> launched at 2.66
billion (not a typo!) and trades anywhere from less than a dollar (the TVIX.IV <a href="http://vixandmore.blogspot.com/search/label/intraday%20indicative%20value">indicative
value</a>) to 2.45 <a href="http://vixandmore.blogspot.com/search/label/TVIXF">TVIXF</a>
(on the pink sheets), depending upon how you wish to measure the magnitude of
the bloodbath.<span style="mso-spacerun: yes;"> </span>On the other side of the
coin, the -1x short <a href="http://vixandmore.blogspot.com/search/label/XIV">XIV</a>
fell 93% on one day back in the February 2018 volatility spike now known as <a href="http://vixandmore.blogspot.com/search/label/Volmageddon">Volmageddon</a>
that resulted in an <a href="https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-announces-event-acceleration-xiv-etn-201802.html#:~:text=The%20acceleration%20date%20for%20XIV,on%20the%20accelerated%20valuation%20date.">acceleration
event</a> (triggered when the price of XIV fell by more than 80% on a single
day) and the closing of XIV.<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">From the 30,000-foot
perspective, the big risk in being short volatility is that a big one-day VIX
spike can theoretically destroy the value of your entire position. On the other hand, the big risk in being long
volatility is that you die a death by a thousand cuts and suffer the same 85%
per year compound annual decline experienced by a product like TVIX.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">There are many individual
risk factors that are responsible for the total risk of an individual VIX
ETP. I have spelled out a number of
these in the past, spending considerable time on <a href="http://vixandmore.blogspot.com/search/label/contango">contango</a> and
negative <a href="http://vixandmore.blogspot.com/search/label/roll%20yield">roll
yield</a>. Way back in May 2009, I
summarized some of my thinking in the likes of <a href="http://vixandmore.blogspot.com/2009/05/vxx-calculations-vix-futures-and-time.html">VXX
Calculations, VIX Futures and Time Decay</a> and elaborated on some of those
themes in October 2009 in <a href="http://vixandmore.blogspot.com/2009/10/why-vxx-is-not-good-short-term-or-long.html">Why
VXX Is Not a Good Short-Term or Long-Term Play</a>. I also addressed the subject of how reverse
splits are the only thing keeping some of these products from falling to zero
in <a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go to Zero?</a> in February 2012. In
that post, I highlighted this gem from the TVIX prospectus:</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt; text-align: left;"><i>“The long term expected value of your ETNs is zero. If you hold your ETNs as
a long-term investment, it is likely that you will lose all or a substantial
portion of your investment.”</i></p></blockquote><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">One of my better
summaries of the factors putting downward pressure on the price of TVIX came in
<a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a> in 2012. Here is the meat of that post:<br /></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><b>1. Volatility </b>– this seems obvious, but in the short-term, the movements of the front month and second month <a href="http://vixandmore.blogspot.com/search/label/VIX%20futures">VIX futures</a> explain almost all of the change in the price of TVIX. For day traders, TVIX becomes essentially a substitute for trading the VIX futures and with the exception of leverage, the other factors below are inconsequential.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><b>2. </b> <b>Leverage </b>– another obvious factor, the 2x leverage in TVIX means that on average it moves about as quickly up and down in percentage terms as the VIX does and twice as quickly as a basket of front month and second month VIX futures. In the short-term, leverage means mostly that the moves in the underlying are exaggerated; in the long-term, leverage enhances volatility compounding and has a negative impact on price.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><b>3. </b> <b>Contango </b>– thanks to the emergence of VIX ETPs as the cornerstone of volatility as an asset class, issues related to the VIX futures <a href="http://vixandmore.blogspot.com/search/label/term%20structure">term structure</a> in general and contango and negative roll yield in particular have become among the most frequently discussed issues in this space. Simply stated, the front month and second months of VIX futures are in contango more than 75% of the time, with the result being a monthly drag on TVIX’s price that exceeds the current annual yield on the 30-Year U.S. Treasury bond.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><b>4. Volatility compounding</b> – the more volatility a leveraged security exhibits, the more that volatility will have a negative impact on performance over an extended period. The issue is the same as someone who owns a dress shop and marks the dress down 50% and then up 50% or reverses the chronology and marks the dress up 50% and then down 50%. Either way, the value of that dress declines by 25%. The same is true for leveraged ETPs and the degree of the price decay is a direct function of volatility.</p></blockquote><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">While the number
of VIX ETNs is dwindling, ETNs have their own set of issues, as these are debt
securities – essentially a promise to pay the value of the underlying index –
rather than a portfolio of VIX futures, as is the case with VIX ETFs. We have seen issues related to VIX ETNs come to
the fore with TVIX in 2012 when Credit Suisse suspended new creation units in
TVIX only to resume new creation units a little more than a month later –
roiling the supply and demand dynamics as well as the TVIX market price in both
directions. Last month something similar
happened with Barclays and <a href="http://vixandmore.blogspot.com/search/label/VXX">VXX</a> when Barclays
suspended new creation units in this product.
There are issues related to ETNs that are unique to these types of
securities and include credit risk, counterparty risk, price risk relative to
indicative value, etc. The SEC
summarizes some of these ETN-specific risks in <a href="https://www.sec.gov/oiea/investor-alerts-bulletins/ib_etn.html">this
investor bulletin</a>.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">If you want to better understand some of the risk factors involved in these
products, I highly recommend you review the prospectuses of some of the following
ETNs and ETFs:<br /></p><ul style="text-align: left;"><li><a href="https://ipathetn.barclays/ipath/details/341408/download-content/7726665">VXX</a></li><li><a href="https://www.proshares.com/globalassets/proshares/prospectuses/proshares_trust_ii_prospectus_s3b3.pdf">VIXY,
UVXY and SVXY</a></li><li><a href="https://www.volatilityshares.com/wp-content/uploads/2022/03/UVIX-SVIX-Prospectus.pdf">UVIX
and SVIX</a></li></ul>
<o:p></o:p><p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">I am often asked
if these products were designed to go to zero.<span style="mso-spacerun: yes;">
</span>No, they were not designed to go to zero.<span style="mso-spacerun: yes;"> </span>The original intent was that these products would
be short-term hedging or speculative instruments for institutions.<span style="mso-spacerun: yes;"> </span>They do, however, have structural flaws that begin
to appear as soon as these products are held for more than one day.<span style="mso-spacerun: yes;"> </span>Over time, these structural flaws compound
and will dominate the price action.<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For all the reasons
state above, I urge anyone considering trading VIX ETPs to review all relevant
prospectuses and make a concerted effort to educate yourself on the products, their
price histories and the reasons behind those price movements. For those who insist on trading these
products, it is always safest to consider defined risk trades so that the
maximum loss is known in advance. This may
be a long position, a long or short position with an options hedge, or an options
position such as a vertical spread that is a defined risk trade.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the graphic
below, I show the lifetime history of TVIX/TVIXF in black and TVIX.IV in red
(it was the same as TVIX until it was delisted in July 2020). Note that the Y-axis is on a log scale so
that the data captures the relatively constant percentage declines, rather than
the precipitous drop in price. For fun,
try to pick out any major spike in volatility on this chart other than the pandemic.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEir_p4WNx9b39Qinvk0awSF-SkWqlsYobq-fV713JLqo0kvPxkT8hxTifm1xYJRq01eiAfCVgZgzmJoRYsg7Kx6A_GNslAqHjK0I7UNA54eLUGtsAQ67aRac-nhfktdIcAhiFXsmTm51WFvFWXqvD-dXbgo7O5kzVM6C1FtHuNzCuCWZB1i5Oy5LLBiVA/s2487/TVIX%20history%20040322.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1120" data-original-width="2487" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEir_p4WNx9b39Qinvk0awSF-SkWqlsYobq-fV713JLqo0kvPxkT8hxTifm1xYJRq01eiAfCVgZgzmJoRYsg7Kx6A_GNslAqHjK0I7UNA54eLUGtsAQ67aRac-nhfktdIcAhiFXsmTm51WFvFWXqvD-dXbgo7O5kzVM6C1FtHuNzCuCWZB1i5Oy5LLBiVA/w640-h288/TVIX%20history%20040322.png" width="640" /></a></div><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>Yahoo, VIX and More]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/vxx-upside-vs-downside-risk-with-no-new.html">VXX
Upside vs. Downside Risk with No New Creation Units</a><br /><a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays
Suspends Creation Units for VXX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX
Creation Units Return; What It Means for Investors</a><br /><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit
Suisse Suspends Creation Units in TVIX: What it Means</a><br /><a href="http://vixandmore.blogspot.com/2009/10/why-vxx-is-not-good-short-term-or-long.html">Why
VXX Is Not a Good Short-Term or Long-Term Play</a><br /><a href="http://vixandmore.blogspot.com/2009/05/vxx-calculations-vix-futures-and-time.html">VXX
Calculations, VIX Futures and Time Decay</a><br /><a href="http://vixandmore.blogspot.com/2009/05/using-options-to-control-risks-in.html">Using
Options to Control Risk in Leveraged ETFs</a></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX and UVXY, long SVIX at time of
writing<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-85234446626992574402022-03-30T23:42:00.005-07:002022-03-30T23:42:45.521-07:00Successful Launch for SVIX and UVIX<p>Today was the
first launch of a <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX ETP</a> in six
years, at least by my count. It appears
to be worth the wait, as <a href="http://vixandmore.blogspot.com/search/label/SVIX">SVIX</a> (Volatility
Shares -1x Short VIX Futures ETF) had very robust volume, with 380,385 shares
handily topping the 215,700 shares <a href="http://vixandmore.blogspot.com/search/label/VXX">VXX</a> traded in its
debut back on January 30, 2009. <a href="http://vixandmore.blogspot.com/search/label/UVIX">UVIX</a> (Volatility
Shares 2x Long VIX Futures ETF) just missed the
VXX debut mark with 213,688 shares traded.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">As an added bonus,
I understand that options are scheduled to begin trading on both SVIX and UVIX tomorrow.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">I previously opined,
in <a href="http://vixandmore.blogspot.com/2022/03/uvix-and-svix-join-vix-based-etp.html">UVIX
and SVIX Join the VIX-Based ETP Landscape</a>, on how I believe the superior
product design and daily rebalancing methodology for SVIX and UVIX have the potential
to make these the top two products in the VIX ETP space.<span style="mso-spacerun: yes;"> </span>That said, it is still early days and when it
comes to VIX ETPs, big surprises often lurk just around the corner.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7H7lpPC9Bdc01Eg4-wjRIwaD3Dl2czdU6nQtQ5xiA3qngwiqDdHLVsiR1HwZ6C3Z8T8HQ6HfL9C5NGglilIBcthiYsMmFbg51djBPaBd_P4aiqvjtvieCJu8ftmM5Fmc5B0X4hDVnolrv_yRU18AFhNCCs_6n58vteRS3QMv7Gl6w5b94xsgr7-_rog/s723/SVIX%20and%20UVIX%20debut%20033022.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="162" data-original-width="723" height="90" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7H7lpPC9Bdc01Eg4-wjRIwaD3Dl2czdU6nQtQ5xiA3qngwiqDdHLVsiR1HwZ6C3Z8T8HQ6HfL9C5NGglilIBcthiYsMmFbg51djBPaBd_P4aiqvjtvieCJu8ftmM5Fmc5B0X4hDVnolrv_yRU18AFhNCCs_6n58vteRS3QMv7Gl6w5b94xsgr7-_rog/w400-h90/SVIX%20and%20UVIX%20debut%20033022.png" width="400" /></a></div><p></p><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>Yahoo]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/uvix-and-svix-join-vix-based-etp.html">UVIX
and SVIX Join the VIX-Based ETP Landscape</a><br /><a href="http://vixandmore.blogspot.com/2009/01/first-day-of-trading-in-vxx-and-vxz.html">First
Day of Trading in VXX and VXZ a Success</a></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<!--[endif]--><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span style="color: windowtext; text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX and long SVIX at time of
writing<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-83892224588533907192022-03-29T23:20:00.002-07:002022-04-14T10:30:41.561-07:00UVIX and SVIX Join the VIX-Based ETP Landscape<p>Tomorrow will see
first launch in the <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX ETP</a> space
since…well I’m not sure exactly, but I’m guessing the May 2016 launch of the
now defunct <a href="http://vixandmore.blogspot.com/search/label/VMIN">VMIN</a>
and <a href="http://vixandmore.blogspot.com/search/label/VMAX">VMAX</a>
products. Back <a href="http://vixandmore.blogspot.com/2016/05/update-vix-etp-landscape-including-vmax.html">in
2016, I tracked 27 different VIX ETPs</a> and while there were several obvious
leaders, the field was still in flux at that time. In the intervening six years, it has been a
war of attrition and that attrition has seen some spectacular departures and
renovations, including <span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">the “<a href="http://vixandmore.blogspot.com/search/label/Volmageddon">Volmageddon</a>”
demise</span> of <a href="http://vixandmore.blogspot.com/search/label/XIV">XIV</a> and the
subsequent downward recalibration of leverage in issues such as <a href="http://vixandmore.blogspot.com/search/label/UVXY">UVXY</a> and <a href="http://vixandmore.blogspot.com/search/label/SVXY">SVXY</a>. </p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">This time around we have two promising ETFs that will be positioned in two
critical spaces in the VIX ETP landscape, as the graphic below shows.<span style="mso-spacerun: yes;"> </span>Not only are these products ETFs that avoid
some of the potential problems associated with ETNs, including credit/counterparty
risk, issuance/creation units risk, and acceleration/closure risk, but they make a valiant effort to address some of the daily rebalancing issues highlighted by the Volmageddon fiasco on February 5, 2018.<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Specifically, the feature
of these products that I find particularly compelling is the new methodology
for daily rebalancing, which essentially uses time-weighted average prices in
5-second intervals covering the last 15 minutes of the standard trading session. In this manner, the risks associated with
liquidity of after-hours rebalancing or dramatic pre-close spikes are all but
eliminated. For more on the details of
the end-of-day rebalancing methodology, I recommend Vance Harwood’s <a href="https://sixfigureinvesting.com/2022/01/how-do-the-shortvol-and-longvol-indexes-work/">Why
We Need the LONGVOL & SHORTVOL Indexes</a>.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The two new products
are:</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><b><a href="http://vixandmore.blogspot.com/search/label/UVIX">UVIX</a> (Volatility
Shares 2x Long VIX Futures ETF)</b> – a +2x product that is similar to the <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a>/TVIXF ETN as
well as the UVXY ETF prior to its decrease in leverage from +2x to +1.5x on February
28, 2018 (<a href="https://www.volatilityshares.com/uvix/">profile</a>, <a href="https://www.volatilityshares.com/wp-content/uploads/2022/03/UVIX-SVIX-Prospectus.pdf">prospectus</a>,
<a href="https://sixfigureinvesting.com/2022/02/how-does-volatility-shares-2x-uvix-work/#more-17374">more
information via Vance Harwood</a>)</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><b><a href="http://vixandmore.blogspot.com/search/label/SVIX">SVIX</a> (Volatility
Shares -1x Short VIX Futures ETF)</b> – a -1x product that is similar to the
old <a href="http://vixandmore.blogspot.com/search/label/XIV">XIV</a> ETN as
well as the SVXY ETF prior to its decrease in leverage from -1x to -0.5x on February
28, 2018 (<a href="https://www.volatilityshares.com/svix/">profile</a>, <a href="https://www.volatilityshares.com/wp-content/uploads/2022/03/UVIX-SVIX-Prospectus.pdf">prospectus</a>,
<a href="https://sixfigureinvesting.com/2022/02/how-does-volatility-shares-svix-work/#more-17358">more
information via Vance Harwood</a>)</p></blockquote><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">With VXX currently
in turmoil due to the ongoing <a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">suspension
of its creation units</a>, both UVIX and SVIX are launching at an opportune
time to take market share. I believe UVIX
and SVIX benefit from a superior product design, an improved end-of-day
rebalancing methodology, the preferred ETF product wrapper, and attractive
leverage/inverse multipliers. All they
need is some liquidity and an active options market before they have the
potential to supplant UVXY and VXX as the top products in the VIX ETP space.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In keeping with
tradition (the graphic below has been published many times in various
incarnations since 2010), I have plotted all of the VIX ETPs with respect to
their target maturity (X-axis) and leverage (Y-axis). [Note that TVIXF and ZIVF, currently traded
in very low volumes on the pink sheets, have been omitted from this matrix.]</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Now all we need
is a product to fill the space left by the departure of <a href="http://vixandmore.blogspot.com/search/label/ZIV">ZIV</a> (-1x, with a 5-month
average maturity) and I would consider all the important VIX ETP white spaces
to be restored.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgacawrnhrJnpos5IxU5_6RtKg7vyYASMoDX3BCu-hVu_QwFb9Bh3Zmg5-WlFkhBhXjquDGAlgGJ1mDDqAn6ixbjC_TQURTIqud1qRKI43GUnY8_JxRCWomohwoKkSJ51lPMclw1_5dViQpsXuDLsAmUagBRtZ097_1gorAkyY41ESn-HUjlMdZexOFjg" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="600" height="480" src="https://blogger.googleusercontent.com/img/a/AVvXsEgacawrnhrJnpos5IxU5_6RtKg7vyYASMoDX3BCu-hVu_QwFb9Bh3Zmg5-WlFkhBhXjquDGAlgGJ1mDDqAn6ixbjC_TQURTIqud1qRKI43GUnY8_JxRCWomohwoKkSJ51lPMclw1_5dViQpsXuDLsAmUagBRtZ097_1gorAkyY41ESn-HUjlMdZexOFjg=w640-h480" width="640" /></a></div><br /><p></p><p align="center" style="text-align: center;"><i>[source(s): VIX and More]<br /><br /><o:p></o:p></i></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays
Suspends Creation Units for VXX</a><br /><a href="http://vixandmore.blogspot.com/2020/10/updating-current-vix-based-etp-landscape.html">Updating
the Current VIX ETP Landscape</a><br /><a href="http://vixandmore.blogspot.com/2017/01/vix-etps-flash-some-green-in-2016.html">VIX
ETPs Flash Some Green in 2016</a><br /><a href="http://vixandmore.blogspot.com/2016/01/every-single-vix-etp-long-and-short.html">Every
Single VIX ETP (Long and Short) Lost Money in 2015</a><br /><a href="http://vixandmore.blogspot.com/2013/10/performance-of-vix-etps-during-recent.html">Performance
of VIX ETPs During the Recent Debt Ceiling Crisis</a><br /><a href="http://vixandmore.blogspot.com/2013/08/expanded-performance-of-volatility.html">Expanded
Performance of Volatility-Hedged and Related ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/06/performance-of-volatility-hedged-etps.html">Performance
of Volatility-Hedged ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/04/performance-of-vix-etp-hedges-in.html">Performance
of VIX ETP Hedges in Current Selloff</a><br /><a href="http://vixandmore.blogspot.com/2011/11/ten-months-have-passed-since-last-time.html">Slicing
and Dicing all 31 Flavors of the VIX ETPs</a><br /><a href="http://vixandmore.blogspot.com/2011/01/charting-assets-of-volatility-based.html">Charting
the Assets of the Volatility-Based ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/who-is-trading-tvix.html">Who Is
Trading TVIX?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About
UVXY</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX and UVXY at time of writing<o:p></o:p></span></i></p>
<p align="center" style="text-align: center;"><i><span style="mso-spacerun: yes;"> </span><o:p></o:p></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-61440628297098416072022-03-29T09:07:00.002-07:002022-03-30T09:57:45.739-07:00VXX Premium to Indicative Value Falls Slightly to 26%<p>It has been two
weeks since Barclays surprised volatility investors by <a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">announcing
the suspension</a> of new creation units in the popular iPath Series B S&P
500® VIX Short-Term Futures ETN (<a href="https://vixandmore.blogspot.com/search/label/VXX">VXX</a>). Yesterday, a <a href="https://home.barclays/content/dam/home-barclays/documents/investor-relations/IRNewsPresentations/2022News/20220328-Impact-of%20over-issuance-under-BBPLC-US-Shelf.pdf">Barclays
press release</a> clarified some of what happened, noting that the firm had
issued $15.2 billion more in VXX than had been authorized in an August 2019 $20.2 billion shelf registration. Barclays
has elected to conduct a rescission offer to eligible purchasers and is also
dealing with regulatory authorities on this matter.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">As for the future of VXX, Barclays was vague, but ended their press release
with the following statement:<br />
</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left;"><i>“Barclays intends to file a new automatic shelf registration statement with
the SEC as soon as practicable.<span style="mso-spacerun: yes;"> </span>Barclays
remains committed to its structured products business in the United States.”</i></p></blockquote><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">It is worth noting
that VXX is a small part of the $12.7 billion structured products business in
the United States that Barclays has pledged to continue with. In that respect, the future of VXX is
uncertain, but the intent to file a new automatic shelf registration “as soon
as practicable” is certainly a favorable development.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">VXX is down today with positive developments in the talks between Russia and
Ukraine, but for the first time since March 16<sup>th</sup>, the VXX premium relative
to its <a href="http://vixandmore.blogspot.com/search/label/intraday%20indicative%20value">intraday
indicative value (IV)</a> is down from the previous day, currently at 26.3%,
down from yesterday’s 28.5% at the close.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The chart below
captures the journey in VXX relative to indicative value (VXX.IV) going back to
the Russian invasion of Ukraine.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">As noted previously, the risk for shorts is that the short squeeze will
continue and maybe even accelerate, perhaps in dramatic fashion, with the VXX premium to VXX.IV rising
sharply.<span style="mso-spacerun: yes;"> </span>On the other hand, the
risk for longs is that Barclays will suddenly announce a new automatic shelf registration
and the premium to IV will suddenly collapse to zero, as was the case with <a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX
and Credit Suisse back in 2012</a>.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">While options in
VXX are expensive (implied volatility is at 120), defined risk options trades
are typically the best way to proceed when there is substantial “<a href="https://vixandmore.blogspot.com/search/label/jump%20risk">jump risk</a>”
(or overnight gap up or gap down risk) in both directions.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Finally – and for
completeness sake – I should note that the <a href="https://vixandmore.blogspot.com/search/label/OIL">OIL</a> ETN that also had
its creation units suspended in conjunction with VXX continues to behave relative
to its indicative value, currently showing a premium of just 0.05 over
indicative value.<o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpS_wtrNC-FOIm-VyMEGkSJVyQIT9ATcg_Bx4s1DWCaZ1KxKAd3abqu6G5M0GkavVYfDgwNvoenB_h-wSOmJCcLyL6vq-hePwPWF6fMeY9Knp2plagqpwPlmmV9DG0iNQIkLtofqLlQAt11cZg_veXOO6i1GlUQ9yDrfffCmzxYN4GmzSbEV2FUTNsGw/s2108/VXX%20premium%20to%20IV%20032922.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1176" data-original-width="2108" height="358" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpS_wtrNC-FOIm-VyMEGkSJVyQIT9ATcg_Bx4s1DWCaZ1KxKAd3abqu6G5M0GkavVYfDgwNvoenB_h-wSOmJCcLyL6vq-hePwPWF6fMeY9Knp2plagqpwPlmmV9DG0iNQIkLtofqLlQAt11cZg_veXOO6i1GlUQ9yDrfffCmzxYN4GmzSbEV2FUTNsGw/w640-h358/VXX%20premium%20to%20IV%20032922.png" width="640" /></a></div>
<p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>TD Ameritrade]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/vxx-upside-vs-downside-risk-with-no-new.html">VXX
Upside vs. Downside Risk with No New Creation Units</a><br /><a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays
Suspends Creation Units for VXX</a><br /><a href="http://vixandmore.blogspot.com/2021/02/attempt-at-tvixf-short-squeeze-fizzling.html">Attempt
at TVIX Short Squeeze Fizzling Out</a><br /><a href="http://vixandmore.blogspot.com/2012/12/the-resurrection-of-tvix.html">The
Resurrection of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/04/tvix-premium-to-indicative-value.html">TVIX
Premium to Indicative Value Creeping Back Up</a><br /><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX
Creation Units Return; What It Means for Investors</a><br /><a href="http://vixandmore.blogspot.com/2012/03/is-tvix-now-just-more-docile-uvxy.html">Is
TVIX Now Just a More Docile UVXY?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/recent-tvix-volume-and-vix-futures.html">Recent
TVIX Volume and VIX Futures Volume</a><br /><a href="http://vixandmore.blogspot.com/2012/02/story-of-vix-etps-relative-to-their.html">The
Story of VIX ETPs Relative to their Intraday Indicative Values</a><br /><a href="http://vixandmore.blogspot.com/2012/02/ups-and-downs-of-new-premium-in-tvix.html">The
Ups and Downs of the New Premium in TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit
Suisse Suspends Creation Units in TVIX: What it Means</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/who-is-trading-tvix.html">Who Is
Trading TVIX?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/volatility-becomes-unhinged-on-friday.html">Volatility
Becomes Unhinged on Friday</a><br /><a href="http://vixandmore.blogspot.com/2011/01/tvix-finally-getting-due-as-day-trading.html">TVIX
Finally Getting Its Due As Day Trading Rocket Fuel</a><br /><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About
UVXY</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">While it has not
been updated in a while, new readers may also enjoy older posts that have been
tagged with the <a href="http://vixandmore.blogspot.com/search/label/hall%20of%20fame">Hall of
Fame</a> label.<br />
<br />
For those who may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX at time of writing</span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-39243964420900760102022-03-28T23:52:00.009-07:002022-03-28T23:52:59.589-07:00Point Hedges ETP Performance During Invasion of Ukraine<p>On Friday in <a href="https://vixandmore.blogspot.com/2022/03/flight-to-safety-etp-performance-during.html">Flight-to-Safety
ETP Performance During Invasion of Ukraine</a>, I reviewed the performance of some
of the traditional flight-to-safety ETPs (Treasuries, gold, currencies and volatility)
that are often used to hedge an equity-centric portfolio. </p>
<p class="MsoNormal">Evaluating the
performance of these ETPs since <a href="https://vixandmore.blogspot.com/search/label/Russia">Russia</a> invaded <a href="https://vixandmore.blogspot.com/search/label/Ukraine">Ukraine</a> a
little over a month ago, I found some rather lackluster numbers. As a group, these products have not even
broken even since the invasion of Ukraine.<o:p></o:p></p>
<p class="MsoNormal">This time around,
I have elected to look at the performance of some less traditional ETPs,
including some much more targeted products that I have referred to in the past
as “<a href="http://vixandmore.blogspot.com/search/label/point%20hedge">point
hedges</a>.” Specifically, I looked at areas
where exports from Russia and Ukraine are a significant portion of the global
export market and whose disruption could have a significant impact on the
global balance of supply and demand. As
it turns out, these commodities were easy to identify and the price dislocations
have generally dwarfed the appreciation one might have been able to realize
with more traditional hedges.</p><p class="MsoNormal">These products include: <br />
<a href="https://vixandmore.blogspot.com/search/label/USO">USO</a>: West Texas Intermediate
Crude Oil (solid red line)<br />
<a href="https://vixandmore.blogspot.com/search/label/UNG">UNG</a>: Natural Gas
(dark purple line)<br />
<a href="https://vixandmore.blogspot.com/search/label/DBB">DBB</a>: Base Metals
(light green line)<br />
<a href="https://vixandmore.blogspot.com/search/label/DBA">DBA</a>: Agriculture
(violet line)<br />
<a href="https://vixandmore.blogspot.com/search/label/WEAT">WEAT</a>: Wheat (light
blue line<br />
<a href="https://vixandmore.blogspot.com/search/label/CORN">CORN</a>: Corn
(black line)<br />
<a href="https://vixandmore.blogspot.com/search/label/ITA">ITA</a>: Aerospace &
Defense (medium blue/green line)<br />
<!--[endif]--><o:p></o:p></p>
<p class="MsoNormal">[Note that nickel
(<a href="https://vixandmore.blogspot.com/search/label/JJN">JJN</a>) should be
on this list, but in part due to some chaos and mismanagement at the London
Metal Exchange, JJN prices jumped have had multiple spikes of more than 100%
and dwarf the performance of other ETPs in this graphic. Additionally, for the international crude oil
market, Brent crude oil (<a href="https://vixandmore.blogspot.com/search/label/BNO">BNO</a>) is typically a
better measure than USO, but since the
Russian invasion of Ukraine, the two ETPs have only differed in
performance by about 2%.]</p>
<p class="MsoNormal">It is easy to
play Monday morning quarterback and say that with hindsight it is easy to pick
the winners, but anyone who studied Ukraine’s biggest contributions to the global
export market could have deduced that a supply shortage in wheat and corn was
likely and for Russia, natural gas, crude oil and nickel were three areas of
high risk in terms of their strategic value to the West, with wheat and corn
also part of the equation. I threw in
aerospace & defense as a general military hedge.<br />
<br />
Unlike the inconsistent and largely negative performance of more traditional flight-to-safety
ETPs since the Russian invasion, the point hedges above have all seen gains of
at least 3% during this period – and if you remove aerospace & defense from
the mix, all the gains are at least 6.8% or higher. <br />
<br />
This is not to say that more narrow point hedges will usually outperform the
broader traditional hedges during periods of geopolitical turmoil, but rather
to remind readers that instead of a more generic hedge, a targeted hedge or
speculative trade often has the potential to deliver substantially greater
returns, such as the median 13% returns from the group of ETPs above.</p>
<p class="MsoNormal">This also means,
of course, that should there be progress in the talks between Russia and
Ukraine that each of these point hedges is exposed to the potential of a
significant decline in price.<o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjovxYdB3uQG2IHN__t4ssr6AIVadwL7HyusEqvG2g-DxgQzOH1QRi7dz2B4pOSjpKX3Vxetabgu-JziAx21LrCcNvhM1d9dthJ6zOAR2WYflk7Vu9ViYgGK2raPGdwvw7eYSkXea4jXY5-JINcO0GrxPBjmFzOL75vxePWCw2S0T4v7plJpcPOVXSBQ/s3648/Ukraine%20alt%20hedges%20032822.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1544" data-original-width="3648" height="270" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjovxYdB3uQG2IHN__t4ssr6AIVadwL7HyusEqvG2g-DxgQzOH1QRi7dz2B4pOSjpKX3Vxetabgu-JziAx21LrCcNvhM1d9dthJ6zOAR2WYflk7Vu9ViYgGK2raPGdwvw7eYSkXea4jXY5-JINcO0GrxPBjmFzOL75vxePWCw2S0T4v7plJpcPOVXSBQ/w640-h270/Ukraine%20alt%20hedges%20032822.jpg" width="640" /></a></div><br /><p align="center" style="text-align: center;"><i>[source(s): StockCharts.com]<o:p></o:p></i></p>
<p class="MsoNormal"><i>Further
Reading:<br />
</i><a href="https://vixandmore.blogspot.com/2022/03/flight-to-safety-etp-performance-during.html">Flight-to-Safety
ETP Performance During Invasion of Ukraine</a><br />
<a href="http://vixandmore.blogspot.com/2011/12/safe-haven-options-shrinking.html">Safe
Haven Options Shrinking?</a><br />
<a href="http://vixandmore.blogspot.com/2011/02/chart-of-week-flight-to-safety-etps.html">Chart
of the Week: Flight-to-Safety ETPs</a><br /><a href="http://vixandmore.blogspot.com/2010/06/revisiting-flight-to-safety-trade.html">Revisiting
the Flight-to-Safety Trade</a><br /><a href="http://vixandmore.blogspot.com/2010/05/chart-of-week-flight-to-safety-trade.html">Chart
of the Week: The Flight-to-Safety Trade</a><br /><a href="http://vixandmore.blogspot.com/2012/03/why-not-point-hedges.html">Why
Not Point Hedges?</a><br /><a href="http://vixandmore.blogspot.com/2012/05/cheating-with-partial-hedges.html">Cheating
with Partial Hedges</a><br /><a href="http://vixandmore.blogspot.com/2009/07/forces-acting-on-vix.html">Forces
Acting on the VIX</a><br /><a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a></p><p class="MsoNormal">
While it has not been updated in a while, new readers may also enjoy older
posts that have been tagged with the <a href="http://vixandmore.blogspot.com/search/label/hall%20of%20fame">Hall of
Fame</a> label.<br />
<br />
For those who may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span style="color: windowtext;"><o:p></o:p></span></span></p>
<b><i><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">Disclosure(s): </span></i></b><i><span style="font-family: "Times New Roman",serif; font-size: 12.0pt; mso-ansi-language: EN-US; mso-bidi-font-weight: bold; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">Net short VXX and long USO,
DBB, DBA and ITA at time of writing</span></i>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-11293334149186692772022-03-25T12:39:00.001-07:002022-03-28T23:53:11.102-07:00Flight-to-Safety ETP Performance During Invasion of Ukraine<p><a href="https://vixandmore.blogspot.com/search/label/Russia">Russia</a> invaded <a href="https://vixandmore.blogspot.com/search/label/Ukraine">Ukraine</a> a
little over a month ago, creating turmoil and panic in stocks and across a wide
variety of asset classes and instruments. </p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the graphic below, I capture the performance of ETPs covering a variety of
traditional flight-to-safety instruments that are used to de-risk or hedge an equity-centric
portfolio.<span style="mso-spacerun: yes;"> </span>These include:<span style="mso-spacerun: yes;"> </span><br />
<a href="https://vixandmore.blogspot.com/search/label/SHY">SHY</a>: 1-3 Year
Treasuries (solid red line)<br />
<a href="https://vixandmore.blogspot.com/search/label/GLD">GLD</a>: Gold (dark
purple line)<br />
<a href="https://vixandmore.blogspot.com/search/label/UUP">UUP</a>: U.S. Dollar
(light green line)<br />
<a href="https://vixandmore.blogspot.com/search/label/FXY">FXY</a>: Japanese
Yen (violet line)<br />
<a href="https://vixandmore.blogspot.com/search/label/FXF">FXF</a>: Swiss Franc
(light blue line)<br />
<a href="https://vixandmore.blogspot.com/search/label/VIXY">VIXY</a>: Short-Term
VIX Futures (black line)<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Note that normally
I would use <a href="https://vixandmore.blogspot.com/search/label/VXX">VXX</a>,
but the price distortions due to the <a href="https://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">suspension
of new creation units</a> makes VIXY a more accurate measure.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The graphic shows that none of the ETPs above turned in particularly strong performance.<span style="mso-spacerun: yes;"> </span>Long volatility has been the best performer
for the first two weeks, but is now down more than the S&P 500 Index, with
a loss of over 12%.<span style="mso-spacerun: yes;"> </span>The top performer
for the entire period is gold, which has had a fairly steady if unremarkable
return during this period.<span style="mso-spacerun: yes;"> </span>The second-best
performer is the dollar, which has seen a steady upside, but has consistently
trailed gold.<span style="mso-spacerun: yes;"> </span>Three ETPs have also
generated losses, following a slight uptick the first few days.<span style="mso-spacerun: yes;"> </span>The worst performer has been the Japanese yen
and the other underperformers have been the Swiss Franc and 1-3 Year Treasuries.<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">All in all,
these traditional or generic hedges have been a disappointment. In my next post, I will look at some hedges
that are better suited to the Russia-Ukraine situation and have delivered much
better results.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiksR2DpTTsfy8Pav1fl3MMeKbXpl3uyWj6eTAmx4tN4TrxYckFzB07FaK1fZhdhLP2oHAxSTNXskz-F1Qzc85jWPz-KjzcJQ3nuCdHuCVPgziL58uS8IlyrsDhjKdTGL1r7rEIQiz6R3izfnauZ6rEHux54tPNLZLC86GeGxbj7DvjhHAFC8vbJ2BmuA/s3656/Ukraine%20trad%20hedges%20032522.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1544" data-original-width="3656" height="270" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiksR2DpTTsfy8Pav1fl3MMeKbXpl3uyWj6eTAmx4tN4TrxYckFzB07FaK1fZhdhLP2oHAxSTNXskz-F1Qzc85jWPz-KjzcJQ3nuCdHuCVPgziL58uS8IlyrsDhjKdTGL1r7rEIQiz6R3izfnauZ6rEHux54tPNLZLC86GeGxbj7DvjhHAFC8vbJ2BmuA/w640-h270/Ukraine%20trad%20hedges%20032522.jpg" width="640" /></a></div><br /><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>StockCharts.com]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br />
</i><a href="http://vixandmore.blogspot.com/2011/12/safe-haven-options-shrinking.html">Safe
Haven Options Shrinking?</a><br />
<a href="http://vixandmore.blogspot.com/2011/02/chart-of-week-flight-to-safety-etps.html">Chart
of the Week: Flight-to-Safety ETPs</a><br /><a href="http://vixandmore.blogspot.com/2010/06/revisiting-flight-to-safety-trade.html">Revisiting
the Flight-to-Safety Trade</a><br /><a href="http://vixandmore.blogspot.com/2010/05/chart-of-week-flight-to-safety-trade.html">Chart
of the Week: The Flight-to-Safety Trade</a><br /><a href="http://vixandmore.blogspot.com/2012/03/why-not-point-hedges.html">Why
Not Point Hedges?</a><br /><a href="http://vixandmore.blogspot.com/2009/07/forces-acting-on-vix.html">Forces
Acting on the VIX</a><br /><a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><br />
While it has not been updated in a while, new readers may also enjoy older
posts that have been tagged with the <a href="http://vixandmore.blogspot.com/search/label/hall%20of%20fame">Hall of
Fame</a> label.<br />
<br />
For those who may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span style="color: windowtext; text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">Net short VXX and long GLD and SHY at time of
writing<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-27753914831343736872022-03-23T10:07:00.002-07:002022-03-23T10:09:26.423-07:00VIX Teasing Seven Down Days in a Row, with Interesting Performance Implications<p>The VIX has been
down six days in a row and is currently up a few pennies. <br /><br />Assuming the VIX closes down again today (a fascinating thought in an of itself
given the increasing Fed hawkishness as well as concerns about a <a href="https://vixandmore.blogspot.com/search/label/Russia">Russian</a> escalation
in <a href="https://vixandmore.blogspot.com/search/label/Ukraine">Ukraine</a>),
what might the string of declines portend for stocks going forward? I pose this question because I think the
historical data is telling, with 30 such instances of 7-day declines in the 33
years of VIX data going back to 1990.<br /><br />What typically happens to stocks when the VIX falls seven days in a row? Not surprisingly, if the VIX is continuing to
fall, then stocks are almost always continuing to rise, to the point they becomes
overbought. Going forward, stocks have a
tendency to see a one-day decline and some slight underperformance during the
course of the next few days and up to a week.
At some point, whatever had been the fundamental driver of the decline
in the VIX begins to regain control of the price movements in stocks and stocks
move up sharply, with a high likelihood of outperforming the long-term average
moves in stocks.<br /><br />In the graphic
below, I show the movements in the S&P 500 Index following a 7-day decline
in the VIX relative to the average moves in the SPX during the same
period. You can see that the relative underperformance
lasts five days, at which point the overperformance kicks in, with the maxim
outperformance coming after 100 trading days.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgN1-xYJ4yDGJlvKx0SQH9tfW1W18B_zmmvywRoWcwv3x9JatEgLHcz3UEIVdZ59SFTcn_iEQa5VjdvXHfZNsE_GuuqySJafsYeB2fC8ozr2azzgw8Kx43V3Kd33qwngXF35w5M5rXUgeKc-m3Jm2KltLmbwBpUVy2ZCIHkB_odPKiqMl9wAkuvBKfqZQ/s2951/SPX%20Perf%20with%20VIX%20down%207%20or%20more%20days%20032322.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1193" data-original-width="2951" height="258" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgN1-xYJ4yDGJlvKx0SQH9tfW1W18B_zmmvywRoWcwv3x9JatEgLHcz3UEIVdZ59SFTcn_iEQa5VjdvXHfZNsE_GuuqySJafsYeB2fC8ozr2azzgw8Kx43V3Kd33qwngXF35w5M5rXUgeKc-m3Jm2KltLmbwBpUVy2ZCIHkB_odPKiqMl9wAkuvBKfqZQ/w640-h258/SPX%20Perf%20with%20VIX%20down%207%20or%20more%20days%20032322.png" width="640" /></a></div><br /><p><br /></p><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>Yahoo, TD Ameritrade, VIX and More]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br />
</i><a href="http://vixandmore.blogspot.com/2016/11/top-vix-crushes-in-history_8.html">Top
VIX Crushes in History</a><br /><a href="http://vixandmore.blogspot.com/2009/10/vix-narrowly-misses-new-consecutive-day.html">VIX
Narrowly Misses New Consecutive Day Decline Record</a><br /><a href="http://vixandmore.blogspot.com/2016/11/vix-sets-new-record-with-nine-up-days_37.html">VIX
Sets New Record with Nine Up Days in a Row</a><br /><a href="http://vixandmore.blogspot.com/2007/03/streaking.html">Streaking</a></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">While it has not
been updated in a while, new readers may also enjoy older posts that have been
tagged with the <a href="http://vixandmore.blogspot.com/search/label/hall%20of%20fame">Hall of
Fame</a> label.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br />
For those who may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">none<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-68999016753882872152022-03-22T23:20:00.011-07:002022-03-28T14:01:58.682-07:00VXX Upside vs. Downside Risk with No New Creation Units<p>One week ago, Barclays
<a href="https://ipathetn.barclays/cms/static/files/ipath/press/Press%20Release_03_14.pdf">announced</a>
the suspension of issuance of new creation units as well as sales from
inventory for two of its ETNs: the iPath Series B S&P 500 VIX Short-Term
Futures ETN (<a href="https://vixandmore.blogspot.com/search/label/VXX">VXX</a>);
and the iPath Pure Beta Crude Oil ETN (<a href="https://vixandmore.blogspot.com/search/label/OIL">OIL</a>). </p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The purpose of
this post is to explain the risks for both long and short holders of VXX and to
get a sense of how this story is likely to play out.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">First of all,
the announcement came before regular trading hours on March 14<sup>th</sup> and
during the entire session, VXX traded at a premium of up to 3.28 points relative
to its <a href="http://vixandmore.blogspot.com/search/label/intraday%20indicative%20value">intraday
indicative value (IV)</a>, as captured in a graphic in <a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays
Suspends Creation Units for VXX</a>. By
the end of the day, VXX was trading at a 1.73 point premium to indicative value -- which is what VXX would be trading at if new creation units were still enabled.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">It wasn’t until
March 15<sup>th</sup> that the fireworks begin.
That morning, VXX opened up another 2.08 points at 30.89, up 6.7% from the
previous day’s close. Right from the
open there was some intense buying pressure that resulted in a short squeeze, with VXX briefly spiking as high as 41.65, up 44.6% from the previous day’s
close. That short squeeze was retraced
over the course of the day and by the end of the session, VXX was down 0.11 on
the day. The action during the last five
days has been relatively uneventful, though the volume in VXX has dropped
approximately 90% from a pre-suspension average of about 50 million shares per day
to less than 5 million today. As of
today’s close, VXX was at 25.44, some 3.93 points (15.4%) over indicative
value.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The chart below
captures the journey of VXX relative to indicative value (VXX.IV) in the seven
days going back to the original announcement of the suspension of new creation
units. Note that for the last week, the
VXX premium relative to VXX.IV has been in a range between 1.50 and 5.00, with
that early short squeeze premium of 15.11 now firmly in the rear-view
mirror. At various times it appeared
that traders had settled on 3.50 or 4.00 as an appropriate amount of premium
for VXX in the absence of new creation units that could be used to arbitrage
the price of VXX back down to VXX.IV.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The big questions
are what to expect going forward and what are the risks to both long and short
holders of VXX. At the risk of stating
the obvious, nobody outside of Barclays knows what will happen going forward,
but Barclays described their move as a temporary suspension of creation units. With VXX having assets of $729 million and a fee of 0.89%
per year, Barclays has an incentive to find a solution for the creation units
problem – and whatever is behind it – so that they can collect their $6.5
million annual fee from this product.
Credit Suisse was able to resolve a similar problem with the suspension <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a>
new creation units in a month and a day back in 2012. Barclays and VXX have been at this game
longer than anyone else, with an initial launch of VXX back on January 30, 2009. They have had 13 years to prepare for the present
situation, which is likely a least partly related to hedging risks and costs
associated with how Vladimir Putin proceeds with the invasion of Ukraine. I expect they will find a solution to the new
creation units problem in relatively short order, but I have no insight into
whether this will be a matter of days or weeks.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Going forward, both
longs and shorts have to expect that Barclays will bring VXX creation units
back and when they do, the VXX premium relative to VXX.IV is likely to
disappear almost instantly. Truth be
told, when Credit Suisse brought back creation units in TVIX back in 2012, it
took two days for most of the indicative value premium to be wiped out, but those
days were excruciating losses of 29.3% and 29.8% that left investors reeling
and confused. This time around the
premium at risk of another new creation units air pocket is “only” 15.4% -- but
there is very little to prevent this number from growing much larger.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">This brings us
to the other side of the equation. How
much higher can a short squeeze take VXX?
While 90% of the daily volume in VXX has evaporated in the past seven
days, the current 5 million shares per day will likely have to shrink
considerably more before a short squeeze has much in the way of potential
staying power. The <a href="http://vixandmore.blogspot.com/search/label/DGAZ">DGAZ</a> story from 2020
is a stark reminder that not only is it theoretically possible to see a spike
of 12,000%, but such a spike has recently happened. The problem for longs is that in waiting for
a potential short squeeze, each day brings them one day closer
to the seemingly inevitable announcement of a restoration of creation units and a 15.4%
contraction in the price of VXX. In
addition to that potential 15.4% haircut, long holders should also keep in mind
that VXX has lost an average of 56% per year going back to 2009 due to
structural weaknesses such as <a href="http://vixandmore.blogspot.com/search/label/contango">contango</a>,
negative <a href="http://vixandmore.blogspot.com/search/label/roll%20yield">roll
yield</a> and daily compounding decay (which I have summarized in posts such as
<a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a>), so time is not on the side of VXX longs.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In summary, the
risk for shorts is the potential for a successful short squeeze along the lines
of the DGAZ fiasco. As volume in VXX
decreases, which is likely to be the case until Barclays resolves the new creation
units issue, the risk of a short squeeze rises.
On the other hand, the risk for longs is the resumption of new creation
units almost immediately wiping out the premium over indicative value. Both longs and shorts are likely to see their
risks go up over time. For VXX short,
the assumption is that volume will continue to go down over time, increasing
the risk of a short squeeze. For VXX
longs, the risk is that a solution to the creation units problem is just
around the corner and could be announced at any time. An announcement is unlikely to come out
during the trading day, but overnight risk should be treated as considerably
higher than intraday risk.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">This situation is exactly the type of “<a href="https://vixandmore.blogspot.com/search/label/jump%20risk">jump risk</a>”
(or gap risk) that makes options an attractive way to structure a trade – either
on the long or short side. That said,
note that implied volatility in VXX options is presently at an elevated level
of 102, making outright purchases of VXX puts and calls expensive in
the current environment.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">I should note
that VXX long holders may also be subject to acceleration risk, which means
that this product is subject to early redemption or an “accelerated” maturity
date, at which point the ETN would be redeemed at indicative value (VXX.IV)
not at the current market price. For
more information on the risks associated with ETNs, FINRA has a <a href="https://www.finra.org/investors/alerts/exchange-traded-notes-avoid-unpleasant-surprises">good
summary of the issues</a>.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Last but not
least, I should mention that the <a href="https://vixandmore.blogspot.com/search/label/OIL">OIL</a> ETN that had
its creation units halted at the same time as VXX has seen very little in the
way of premium over indicative value, with the biggest exception being a
smaller squeeze/spike on the second day that coincided with the big spike in
VXX. Right now, the premium in OIL is a
mere 0.03. This does not mean that the
Reddit <a href="https://vixandmore.blogspot.com/search/label/wallstreetbets">wallstreetbets</a>
crowd will not suddenly pile into the OIL trade in an effort to squeeze the
shorts in a lower volume name, but so far at least, the WSB crowd does not see
OIL in the same way they saw the <a href="https://www.reddit.com/r/wallstreetbets/comments/teipbx/vxx_or_opportunity_of_a_lifetime/">VXX
or Opportunity of a Lifetime</a> trade.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">So, whether you
are long or short VXX, understand the risks associated with your position and
the time and volume factors also at work.
For those who insist on trading this name, consider structuring
positions as defined-risk options trades.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the graphic
below, I show the premium of VXX to VXX.IV over the course of the last seven
days, using 30-minute bars.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLQ7dMOgBFd9woS1WCsY4GHdSPGE6r2PsvpCHoeK5KG2R7t9UWkh6HNFdZn59Ig2tOD8veNUwABkW9vNNuCIR2tfrSK2yLoKF32F81F_0JMkYPHfmLkJeYt9pwEBi6rETDHRw9zLSJ3zkIFX4CuRQdk625X42Zf_t2_fZo2KsIQw5eO8fChvsnhNvMBw/s2002/VXX-VXXIV%20031422-032222.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1364" data-original-width="2002" height="436" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLQ7dMOgBFd9woS1WCsY4GHdSPGE6r2PsvpCHoeK5KG2R7t9UWkh6HNFdZn59Ig2tOD8veNUwABkW9vNNuCIR2tfrSK2yLoKF32F81F_0JMkYPHfmLkJeYt9pwEBi6rETDHRw9zLSJ3zkIFX4CuRQdk625X42Zf_t2_fZo2KsIQw5eO8fChvsnhNvMBw/w640-h436/VXX-VXXIV%20031422-032222.jpg" width="640" /></a></div><br /><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>Yahoo, TD Ameritrade, VIX and More]<o:p></o:p></i></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further Reading:<br /></i><a href="http://vixandmore.blogspot.com/2022/03/barclays-suspends-creation-units-for-vxx.html">Barclays Suspends Creation Units for VXX</a><i><br /></i><a href="http://vixandmore.blogspot.com/2021/02/attempt-at-tvixf-short-squeeze-fizzling.html">Attempt at TVIX Short Squeeze Fizzling Out</a><br /><a href="http://vixandmore.blogspot.com/2012/12/the-resurrection-of-tvix.html">The Resurrection of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/04/tvix-premium-to-indicative-value.html">TVIX Premium to Indicative Value Creeping Back Up</a><br /><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX Creation Units Return; What It Means for Investors</a><br /><a href="http://vixandmore.blogspot.com/2012/03/is-tvix-now-just-more-docile-uvxy.html">Is TVIX Now Just a More Docile UVXY?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/recent-tvix-volume-and-vix-futures.html">Recent TVIX Volume and VIX Futures Volume</a><br /><a href="http://vixandmore.blogspot.com/2012/02/story-of-vix-etps-relative-to-their.html">The Story of VIX ETPs Relative to their Intraday Indicative Values</a><br /><a href="http://vixandmore.blogspot.com/2012/02/ups-and-downs-of-new-premium-in-tvix.html">The Ups and Downs of the New Premium in TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit Suisse Suspends Creation Units in TVIX: What it Means</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/tvix-topples-vxx-as-highest-volume-vix.html">TVIX Topples VXX as Highest Volume VIX ETP</a><br /><a href="http://vixandmore.blogspot.com/2012/02/who-is-trading-tvix.html">Who Is Trading TVIX?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/volatility-becomes-unhinged-on-friday.html">Volatility Becomes Unhinged on Friday</a><br /><a href="http://vixandmore.blogspot.com/2011/01/tvix-finally-getting-due-as-day-trading.html">TVIX Finally Getting Its Due As Day Trading Rocket Fuel</a><br /><a href="http://vixandmore.blogspot.com/2011/04/tvix-trades-one-million-shares-for.html">TVIX Trades One Million Shares for First Time</a><br /><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About UVXY</a><br /><br /><span style="font-family: Times New Roman, serif;"><span style="font-size: 12pt;">While it has not been updated in a while, new readers may also enjoy older posts that have been tagged with the </span></span><a href="http://vixandmore.blogspot.com/search/label/hall%20of%20fame" style="font-family: "Times New Roman", serif; font-size: 12pt;">Hall of Fame</a><span style="font-family: Times New Roman, serif;"><span style="font-size: 12pt;"> label.</span><br /><br /></span>For those who may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a></p><p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i>net short VXX at time of writing</i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-14161577435786160452022-03-15T00:00:00.010-07:002022-04-14T10:31:02.063-07:00Barclays Suspends Creation Units for VXX<p> Earlier today,
Barclays <a href="https://ipathetn.barclays/cms/static/files/ipath/press/Press%20Release_03_14.pdf">announced</a>
the suspension of issuance of new creation units as well as sales from
inventory for two of its ETNs: the iPath Series B S&P 500® VIX Short-Term
Futures ETN (<a href="https://vixandmore.blogspot.com/search/label/VXX">VXX</a>);
and the iPath Pure Beta Crude Oil ETN (<a href="https://vixandmore.blogspot.com/search/label/OIL">OIL</a>). VXX is the premier <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX-based ETP</a>
and has been the most popular subject on this blog for the past 13 years. It was the <a href="http://vixandmore.blogspot.com/2009/01/first-day-of-trading-in-vxx-and-vxz.html">first
VIX ETP to launch back on January 30, 2009</a> (along with <a href="https://vixandmore.blogspot.com/search/label/VXZ">VXZ</a>) and remains
the flagship product in the volatility space, averaging 70 million shares traded
per day and regularly placing among the top five ETPs in terms of both share
volume and options volume.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">While the news
from Barclays was a surprise, it was not unprecedented.<span style="mso-spacerun: yes;"> </span>Credit Suisse suspended creation units in <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a> (a +2x version
of VXX) twice: <a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">once
in dramatic fashion in February 2012</a>; and again in <a href="https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-ag-announces-its-intent-to-delist-and-suspend-further-issuances-of-its-velocitysharestm-etns-202006.html">July
2020, when the product was delisted and moved to the pink sheets</a> to trade
under the TVIXF ticker.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The first time
around, on February 21, 2012, there was not a <a href="http://vixandmore.blogspot.com/search/label/VIX%20spikes">VIX spike</a>,
per se, that triggered the event.<span style="mso-spacerun: yes;"> </span>Instead,
it was the general popularity of the product and the size of holdings in the TVIX
note (ETNs are an unsecured debt note) that concerned the bank.<span style="mso-spacerun: yes;"> </span>Credit Suisse acknowledged that the TVIX note
violated the bank’s risk management rules related to the “internal limits on
the size of the ETNs” and thus triggered the suspension of creation units.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The second time
around, on July 12, 2020, the record volatility spike associated with the onset
of the pandemic caused the size of the TVIX note to be roughly half of the size
of the bank.<span style="mso-spacerun: yes;"> </span>As a result, Credit Suisse concluded
that the risk of continuing with this product was too high, so they decided to
exit the ETN business, stop issuing new creation units and delist nine ETNs.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In both 2012 and
2020, the absence of new creation units led to a supply shortage and a large
premium in the market price relative to the <a href="http://vixandmore.blogspot.com/search/label/intraday%20indicative%20value">intraday
indicative value (IV)</a>.<span style="mso-spacerun: yes;"> </span>In 2012, new
creation units were halted for a month and a day, with the price of TVIX rising
to an 89% premium to TVIX.IV at one point.<span style="mso-spacerun: yes;">
</span>When TVIX creation units were restored, TVIX fell 60% in three days and
soon was trading within 1% of indicative value.<span style="mso-spacerun: yes;">
</span>In 2020, the cessation of new creation units was final and irreversible,
so TVIXF has now been trading on the pink sheets for 21 months without any new
creation units.<span style="mso-spacerun: yes;"> </span>Initially, there was
almost no premium in TVIXF to TVIX.IV, but the Reddit r/<a href="https://vixandmore.blogspot.com/search/label/wallstreetbets">wallstreetbets</a> crowd eventually latched onto the potential for a short squeeze in TVIX in early
February 2021 and spiked the price of TVIXF from parity to a 43% premium in two
days.<span style="mso-spacerun: yes;"> </span>Since the initial targeting by r/wallstreetbets,
the premium in TVIXF to TVIX.IV has averaged about 72% and has been as high as
160% at one point.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">An even more
famous and noteworthy example of investors targeting a product with no creation
unit capabilities for a short squeeze is the plight of the VelocityShares Daily
3x Inverse Natural Gas ETN (<a href="http://vixandmore.blogspot.com/search/label/DGAZ">DGAZF</a>), which spiked from 400 to 24,000 in a week
in August 2020.<span style="mso-spacerun: yes;"> </span>The VelocityShares Daily
3x Inverse Natural Gas ETN was traded under the ticker DGAZ when it delisted,
with no new creation units along with TVIX on July 12, 2020.<span style="mso-spacerun: yes;"> </span>The combination of longs targeting a short
squeeze, limited liquidity in the OTC pink sheets, no new creation units and 3x
leverage made for a historic spike of 12,000% in one week.<span style="mso-spacerun: yes;"> </span>While such a scenario is unlikely to unfold
in VXX, it is important to understand the history and the potential for
outsized short squeezes when there are no creation units available to arbitrage
away the difference between the heavily shorted underlying and its indicative
value.<br />
<br />
There are many other examples of ETPs that have had their creation units
suspended, with resultant price anomalies.<span style="mso-spacerun: yes;">
</span>Deutsche Bank did it with a variety of commodities ETNs in 2011 and 2012.<span style="mso-spacerun: yes;"> </span>PowerShares also suspended creation units in
the popular PowerShares DB Oil Fund (<a href="https://vixandmore.blogspot.com/search/label/DBO">DBO</a>) in 2015, with yet
another large price spike.<br />
<br />
While buyer beware is a good mantra to keep in mind when purchasing ETFs or
particularly ETNs, it is even more important for short sellers to understand
the risks of holding one or more of these products short when creation units
are suspended and particularly when the products are delisted, with trading
moving to the OTC pink sheets.<br />
<br />
As for VXX, the reasons for the halt in creation units are not exactly clear.<span style="mso-spacerun: yes;"> </span>Barclays says in their press release:<br />
</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left;"><i>“This suspension is being imposed because Barclays does not currently have
sufficient issuance capacity to support further sales from inventory and any
further issuances of the ETNs. These actions are not the result of the crisis
in Ukraine or any issue with the market dynamics in the underlying index
components. Barclays expects to reopen sales and issuances of the ETNs as soon
as it can accommodate additional capacity for future issuances.”</i></p></blockquote>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The underlying
cause of the issuance capacity issue may be a number of factors, including the
cost of hedging the position, exchange position limits or other factors.<span style="mso-spacerun: yes;"> </span>Without knowing the underlying cause, it is
difficult to predict when new creation units will be restored.<span style="mso-spacerun: yes;"> </span>That said, as VXX appreciates in price, the
size of the problem Barclays needs to tackle will continue to rise, which may
further complicate the resolution process.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Of course, when
new creation units are restored, one can expect that the price of VXX will
almost immediately fall to that of VXX.IV.<span style="mso-spacerun: yes;">
</span>Investors, therefore, need to understand the risks associated with long
positions going forward and not find themselves in an air pocket <a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">like
TVIX longs did back in March 2012</a>.<span style="mso-spacerun: yes;">
</span>For this reason, anyone who is insistent upon holding a long or short
position in VXX should consider constructing a defined-risk position using
options.<span style="mso-spacerun: yes;"> </span>Alternatively, <a href="https://vixandmore.blogspot.com/search/label/VIXY">VIXY</a> is an <a href="https://www.proshares.com/our-etfs/strategic/vixy">ETP issued by ProShares
that holds a basket of VIX futures</a> rather than an unsecured bank note with
a promise to return the same performance as that basket of VIX futures.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">It should go
without saying that everything here I addressed relative to VXX is true for OIL
as well and with all the turmoil in the oil markets related to events in <a href="https://vixandmore.blogspot.com/search/label/Ukraine">Ukraine</a> and <a href="https://vixandmore.blogspot.com/search/label/Russia">Russia</a>, there is
already the potential for huge moves in the underlying.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">I covered the
TVIX creation units issue in considerable detail in 2012 and the links below probably
provide the most comprehensive review of this matter anywhere on the internet.<span style="mso-spacerun: yes;"> </span>I have also provided links to a number of tangential
issues related to VIX ETPs and pricing anomalies.</p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the graphic
below, I show the divergence between VXX and VXX.IV during today’s regular trading
hours (Pacific Time).<span style="mso-spacerun: yes;"> </span>I find it interesting
that it took more than three hours after the initial press release before VXX
began to uncouple from VXX.IV and spike higher, ultimately reaching a 12%
premium before the divergence began to narrow during the last half hour of
trading.<br />
<br />
Long-term, I still think VXX is likely to remain the premier VIX-based ETP, but
Barclays has some work to do to get the creation units back and the product
trading with a normal supply-demand balance.<span style="mso-spacerun: yes;">
</span>Until then, keep a close eye on the varying premium of VXX and VXX.IV,
while evaluating alternatives such as VIXY and <a href="https://vixandmore.blogspot.com/search/label/UVXY">UVXY</a>.</p><p align="center" style="text-align: center;"><i></i></p><div class="separator" style="clear: both; text-align: center;"><i><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi6vC1IYjsqyftVJnLuudicZwkIa_BjF06OpYSHHq8xsboYTCjoSucd1wtH91buW1sE0ootzU_LV0DVMWXD1ZCMYH3r7Vtoa8z6UbGyyS7TsYlDMndUHpoUdTrFrHJDKeqpSDRN4tL3IdF1Z4k_JhCNQSC4_glD61bqWVoR0Vw4c8wEbcDzBw8pESM3DA=s2002" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1364" data-original-width="2002" height="435" src="https://blogger.googleusercontent.com/img/a/AVvXsEi6vC1IYjsqyftVJnLuudicZwkIa_BjF06OpYSHHq8xsboYTCjoSucd1wtH91buW1sE0ootzU_LV0DVMWXD1ZCMYH3r7Vtoa8z6UbGyyS7TsYlDMndUHpoUdTrFrHJDKeqpSDRN4tL3IdF1Z4k_JhCNQSC4_glD61bqWVoR0Vw4c8wEbcDzBw8pESM3DA=w640-h435" width="640" /></a><br /><br /></i><p align="center"><i>[source(s):<span style="mso-spacerun: yes;"> </span>Yahoo, TD Ameritrade, VIX and More]<o:p></o:p></i></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt; text-align: left;"><i>Further Reading:<o:p></o:p></i></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt; text-align: left;"><a href="http://vixandmore.blogspot.com/2021/02/attempt-at-tvixf-short-squeeze-fizzling.html">Attempt at TVIX Short Squeeze Fizzling Out</a><br /><a href="http://vixandmore.blogspot.com/2012/12/the-resurrection-of-tvix.html">The Resurrection of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/04/tvix-premium-to-indicative-value.html">TVIX Premium to Indicative Value Creeping Back Up</a><br /><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX Creation Units Return; What It Means for Investors</a><br /><a href="http://vixandmore.blogspot.com/2012/03/is-tvix-now-just-more-docile-uvxy.html">Is TVIX Now Just a More Docile UVXY?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/recent-tvix-volume-and-vix-futures.html">Recent TVIX Volume and VIX Futures Volume</a><br /><a href="http://vixandmore.blogspot.com/2012/02/story-of-vix-etps-relative-to-their.html">The Story of VIX ETPs Relative to their Intraday Indicative Values</a><br /><a href="http://vixandmore.blogspot.com/2012/02/ups-and-downs-of-new-premium-in-tvix.html">The Ups and Downs of the New Premium in TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit Suisse Suspends Creation Units in TVIX: What it Means</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/tvix-topples-vxx-as-highest-volume-vix.html">TVIX Topples VXX as Highest Volume VIX ETP</a><br /><a href="http://vixandmore.blogspot.com/2012/02/who-is-trading-tvix.html">Who Is Trading TVIX?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/volatility-becomes-unhinged-on-friday.html">Volatility Becomes Unhinged on Friday</a><br /><a href="http://vixandmore.blogspot.com/2011/01/tvix-finally-getting-due-as-day-trading.html">TVIX Finally Getting Its Due As Day Trading Rocket Fuel</a><br /><a href="http://vixandmore.blogspot.com/2011/04/tvix-trades-one-million-shares-for.html">TVIX Trades One Million Shares for First Time</a><br /><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About UVXY</a></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt; text-align: left;">For those who may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><o:p></o:p></span></p><p align="center"><b><i>Disclosure(s): </i></b><i>long VXX at time of writing</i></p></div><i><br /><span style="mso-bidi-font-weight: bold;"><br /></span></i><p></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-28765080680559282692021-02-25T23:00:00.005-08:002021-02-26T00:55:02.206-08:00The Evolution of the VIX (1)<p> <br />Volatility is
notorious for clustering in the short-term, <a href="http://vixandmore.blogspot.com/search/label/mean%20reversion">mean-reverting</a>
in the medium-term and settling into multi-year <a href="http://vixandmore.blogspot.com/search/label/VIX%20macro%20cycles">macro
cycles</a> over the long-term. I have
chronicled each of these themes in this space in the past.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Apart from volatility, I have also taken great pains to talk about the movements
of the VIX, which is one of the most famous instances of <a href="http://vixandmore.blogspot.com/search/label/implied%20volatility">implied
volatility</a> and represents investor expectations about future volatility in
the S&P 500 Index for the next thirty calendar days.<span style="mso-spacerun: yes;"> </span>Surprising to some, the VIX and volatility
(which generally refers to realized or <a href="http://vixandmore.blogspot.com/search/label/historical%20volatility">historical
volatility</a>), while correlated, are very different animals.<span style="mso-spacerun: yes;"> </span>Not only are these two very different, their
evolutions have been very different as well.<span style="mso-spacerun: yes;">
</span>Volatility, which has a much longer history, seems to exhibiting the
same traits that it has exhibited throughout its lifetime, with relatively
modest tweaks around the edges from time to time.<o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The same cannot
be said for the VIX. One thing about the
VIX that has changed in the three decades or so of VIX data is the speed at
which the VIX has moved up and down. In
a nutshell, <a href="http://vixandmore.blogspot.com/search/label/VIX%20cycle%20times">VIX
cycle times</a> have shortened dramatically.
In other words, the VIX now has a tendency to spike much faster and
mean-revert downward much faster as well.
This phenomenon has been ongoing for the past decade or so, but it
became more pronounced following the <a href="http://vixandmore.blogspot.com/search/label/Brexit">Brexit</a> craziness –
or at least the first chapter of the Brexit craziness.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">One way you can
see how the changes in the VIX have differed from the changes in the volatility
of the SPX is to look at volatility spikes.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the first
graphic, below, I show the number of days per year with 2% and 4% moves in the
SPX going back to 1990. Take note of the
ebbs and flows in volatility and the clustering of volatility around the dotcom
bubble and again around the <a href="http://vixandmore.blogspot.com/search/label/2008">2008 Great Recession</a>.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-VGVVcbJC8EQ/YDibkTgY-pI/AAAAAAAAK4Y/UnzltqSDHJ47eRB_oJcH0db6O3DkjaSCACLcBGAsYHQ/s2800/Days%2Bw%2B2pct%2Band%2B4pct%2Bmoves%2Bin%2BVIX%2B022521.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1123" data-original-width="2800" height="256" src="https://1.bp.blogspot.com/-VGVVcbJC8EQ/YDibkTgY-pI/AAAAAAAAK4Y/UnzltqSDHJ47eRB_oJcH0db6O3DkjaSCACLcBGAsYHQ/w640-h256/Days%2Bw%2B2pct%2Band%2B4pct%2Bmoves%2Bin%2BVIX%2B022521.png" width="640" /></a></div><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>CBOE, Yahoo, VIX and More]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the second
graphic, I plot annual <a href="http://vixandmore.blogspot.com/search/label/VIX%20spikes">VIX spikes</a>
of 20% or more for each year going back to 1990.<span style="mso-spacerun: yes;"> </span>Note that while visual inspection does not reveal
any obvious trend in the SPX volatility data, the VIX spike data for the same
period show a pronounced upward trend, reflecting the heightened sensitivity of
the VIX to changes in volatility of the SPX.<span style="mso-spacerun: yes;">
</span>In other words, even though volatility may be the same, the VIX is
becoming more sensitive to volatility.<span style="mso-spacerun: yes;"> </span>Another
example that supports this point:<span style="mso-spacerun: yes;"> </span>of all
the one-day spikes in the VIX of 30% or more, 71% have happened in the past decade and only
29% are from the previous two decades.<span style="mso-spacerun: yes;">
</span>The volatility landscape may or may not be changing, but the VIX is.<i><o:p></o:p></i></p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-bBXQ7_5kYms/YDibq9vQ8fI/AAAAAAAAK4c/rBZsils1jLoLE7QF5rF4x3HZn9PBtnoDQCLcBGAsYHQ/s2731/Days%2Bw%2BVIX%2Bspikes%2Bof%2B20pct%2Bor%2Bmore%2B022521.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1151" data-original-width="2731" height="270" src="https://1.bp.blogspot.com/-bBXQ7_5kYms/YDibq9vQ8fI/AAAAAAAAK4c/rBZsils1jLoLE7QF5rF4x3HZn9PBtnoDQCLcBGAsYHQ/w640-h270/Days%2Bw%2BVIX%2Bspikes%2Bof%2B20pct%2Bor%2Bmore%2B022521.png" width="640" /></a></div><p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>CBOE, Yahoo, VIX and More]<br /><br /><o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br />
</i><a href="http://vixandmore.blogspot.com/2017/02/clustering-of-volatility-spikes.html">Clustering
of Volatility Spikes</a><br />
<a href="http://vixandmore.blogspot.com/2017/02/putting-low-stock-volatility-to-good.html">Putting
Low Stock Volatility to Good Use (Guest Columnist at Barron’s)</a><br />
<a href="http://vixandmore.blogspot.com/2007/01/what-my-dog-can-tell-us-about_947.html">What
My Dog Can Tell Us About Volatility</a><br />
<a href="http://vixandmore.blogspot.com/2016/12/my-low-volatility-prediction-for-2016.html">My
Low Volatility Prediction for 2016: Both Idiocy and Genius</a><br />
<a href="http://vixandmore.blogspot.com/2009/12/what-is-historical-volatility.html">What
Is Historical Volatility?</a><br />
<a href="http://vixandmore.blogspot.com/2009/12/calculating-centered-and-non-centered.html">Calculating
Centered and Non-centered Historical Volatility</a><br />
<a href="http://vixandmore.blogspot.com/2010/05/rule-of-16-and-vix-of-40.html">Rule
of 16 and VIX of 40</a><br />
<a href="http://vixandmore.blogspot.com/2011/10/shrinking-vix-macro-cycles.html">Shrinking
VIX Macro Cycles</a><br />
<a href="http://vixandmore.blogspot.com/2009/09/vix-macro-cycles-and-new-floor-in-vix.html">Chart
of the Week: VIX Macro Cycles and a New Floor in the VIX</a><br />
<a href="http://vixandmore.blogspot.com/2009/04/new-vix-macro-cycle-picture.html">The
New VIX Macro Cycle Picture</a><br />
<a href="http://vixandmore.blogspot.com/2008/10/recent-volatility-and-vix-macro-cycles.html">Recent
Volatility and VIX Macro Cycles</a><br />
<a href="http://vixandmore.blogspot.com/2008/03/vix-macro-cycle-update.html">VIX
Macro Cycle Update</a><br />
<a href="http://vixandmore.blogspot.com/2007/12/was-2007-beginning-of-new-era-in.html">Was
2007 the Beginning of a New Era in Volatility?</a><br />
<a href="http://vixandmore.blogspot.com/2007/09/vix-macro-cycles.html">VIX
Macro Cycles</a><br />
<a href="http://vixandmore.blogspot.com/2015/08/last-two-days-are-5-and-6-one-day-vix.html">Last
Two Days Are #5 and #6 One-Day VIX Spikes in History</a><br />
<a href="http://vixandmore.blogspot.com/2015/01/2014-had-third-highest-number-of-20-vix.html">2014
Had Third Highest Number of 20% VIX Spikes</a><br />
<a href="http://vixandmore.blogspot.com/2015/06/todays-34-vix-spike-and-what-to-expect.html">Today’s
34% VIX Spike and What to Expect Going Forward</a><br />
<a href="http://vixandmore.blogspot.com/2013/02/all-time-vix-spike-11-and-treasure.html">All-Time
VIX Spike #11 (and a treasure trove of VIX spike data)</a><br />
<a href="http://vixandmore.blogspot.com/2012/02/biggest-vix-spike-ever-retrospective.html">The
Biggest VIX Spike Ever: A Retrospective</a><br />
<a href="http://vixandmore.blogspot.com/2011/08/vix-sets-some-new-records-suggesting.html">VIX
Sets Some New Records, Suggesting Volatility Near Peak</a><br />
<a href="http://vixandmore.blogspot.com/2010/06/highest-intraday-vix-readings.html">Highest
Intraday VIX Readings</a><br />
<a href="http://vixandmore.blogspot.com/2010/04/short-term-and-long-term-implications.html">Short-Term
and Long-Term Implications of the 30% VIX Spike</a><br />
<a href="http://vixandmore.blogspot.com/2009/10/vix-spike-of-35-in-four-days-is-short.html">VIX
Spike of 35% in Four Days Is Short-Term Buy Signal</a><br />
<a href="http://vixandmore.blogspot.com/2008/10/vxo-chart-from-1987-1988-and.html">VXO
Chart from 1987-1988 and Explanation of VIX vs. VXO</a><br />
<a href="http://vixandmore.blogspot.com/2008/03/volatility-history-lesson-1987.html">Volatility
History Lesson: 1987</a><br />
<a href="http://vixandmore.blogspot.com/2012/12/volatility-during-crises.html">Volatility
During Crises</a><br />
<a href="http://vixandmore.blogspot.com/2009/04/chart-of-week-vxv-and-systemic-failure.html">Chart
of the Week: VXV and Systemic Failure</a><br />
<a href="http://vixandmore.blogspot.com/2009/07/forces-acting-on-vix.html">Forces
Acting on the VIX</a><br />
<a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">short VIX at time of writing<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-90854916753231379262021-02-03T12:40:00.001-08:002021-02-03T13:50:22.924-08:00Attempt at TVIXF Short Squeeze Fizzling Out<p>Amidst all of
the market turmoil following the Reddit <a href="http://vixandmore.blogspot.com/search/label/wallstreetbets">wallstreetbets</a>
efforts to put a massive <a href="http://vixandmore.blogspot.com/search/label/short%20squeeze">short squeeze</a>
on the likes of <a href="http://vixandmore.blogspot.com/search/label/GME">GME</a>,
<a href="http://vixandmore.blogspot.com/search/label/AMC">AMC</a>, <a href="http://vixandmore.blogspot.com/search/label/BBY">BBY</a>, <a href="http://vixandmore.blogspot.com/search/label/EXPR">EXPR</a>, <a href="http://vixandmore.blogspot.com/search/label/KOSS">KOSS</a>, <a href="http://vixandmore.blogspot.com/search/label/BB">BB</a>, etc., it was just
a matter of time before this same short squeeze template was applied to ETPs. On January 28<sup>th</sup>, silver became a short
squeeze target and the primary silver ETP, <a href="http://vixandmore.blogspot.com/search/label/SLV">SLV</a>, was suddenly in
the crosshairs and trading volume spiked about 10x.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">On Monday, the
OTC remnant of the venerable <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a> ETN, <a href="https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-ag-announces-its-intent-to-delist-and-suspend-further-issuances-of-its-velocitysharestm-etns-202006.html">delisted
by Credit Suisse on July 12, 2020</a> and now trading under the <a href="http://vixandmore.blogspot.com/search/label/TVIXF">TVIXF</a> ticker,
became the target of yet another copycat short squeeze effort.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Yesterday, <a href="https://www.bloomberg.com/authors/ASCCR_8p9Gg/yakob-peterseil">Yacob
Peterseil</a> of Bloomberg summarized the developments in the TVIXF short
squeeze attempt in the aptly titled, <a href="https://www.bloomberg.com/news/articles/2021-02-02/a-one-time-giant-of-volatility-has-gone-haywire-in-otc-trading?sref=f1XuD40B">A
Onetime Giant of Volatility Has Gone Haywire in OTC Trading</a>. Peterseil noted that only 7% of TVIXF’s
outstanding shares have been sold short, which dramatically limits the potential
success for a short squeeze. In the
article, I am quoted as not being surprised that an attempt was made to squeeze
the TVIXF shorts given the success of previous short squeeze efforts, but I
also note that an effort to squeeze the shorts is very risky for longs in that the
last time there was a similar undertaking, Credit Suisse declared an acceleration
event and crushed the longs. It is the
risk of an acceleration event that forces the price to the <a href="http://vixandmore.blogspot.com/search/label/intraday%20indicative%20value">indicative
value</a> (IV) – a feature that is unique to ETPs and does not apply to single
stocks – that makes shorting ETPs much riskier.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">The historical
reference above is to <a href="http://vixandmore.blogspot.com/search/label/DGAZF">DGAZF</a>, which went
from about 400 to about 25,000 in one week during a short squeeze in August
2020 when the indicative value was near 200. The decoupling
of the market price on the OTC from indicative value was in large part due to
the cessation of the ability to generate new creation units and thus the
ability to use shorts to arbitrage any difference between the market price and
indicative value. With large losses
incurred by investors and the associated bad publicity, Credit Suisse elected
to accelerate DGAZF. As noted above, the acceleration of the note was
executed at the indicative value price, <i>not</i> the market price: “As described in the Pricing Supplement,
investors will receive a cash payment per ETN equal to the arithmetic average
of the closing indicative values of the ETNs during the accelerated valuation
period.” As a result of the acceleration
to the indicative value, investors who saw DGAZF trade at 125x its indicative
value were exposed to a 99.2% loss.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Not
surprisingly, the TVIX prospectus and pricing supplement has essentially the
same language regarding acceleration at indicative value as DGAZ, with the pricing
supplement noting no less than a dozen times that in an acceleration event, the
redemption price reverts to indicative value rather than the market price. </p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">If some of this
talk of short squeezes, premium to indicative value and suspension of creation
units sounds familiar, this is not the first time it has happened to TVIX. I covered the initial instance of the
suspension of creation units in TVIX at length back in 2012, when most
investors were still not familiar with the intricacies of indicative value,
creation units, the potential for short squeezes and the potential for market
prices to decouple dramatically from indicative value.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the graphic
below, I show the recent uncoupling of TVIXF from TVIX.IV (TVIX’s indicative
value) and the premium that has developed as a result of the short squeeze
peaking at 44% on Monday and falling back to 29% as of today. The key takeaway for longs is that at any
point in time, Credit Suisse can do as they did with DGAZF and declare an
accelerating event, forcing the distorted OTC market price back down to
indicative value in a hurry.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-UEvMZXglLYE/YBsJIEg7YfI/AAAAAAAAK28/TpBBJif4_L8f4x9jx335PyqEBMznE6vGgCLcBGAsYHQ/s2673/TVIXF%2BTVIX.IV%2Band%2BOTC%2BPremium%2B020321.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1176" data-original-width="2673" height="282" src="https://1.bp.blogspot.com/-UEvMZXglLYE/YBsJIEg7YfI/AAAAAAAAK28/TpBBJif4_L8f4x9jx335PyqEBMznE6vGgCLcBGAsYHQ/w640-h282/TVIXF%2BTVIX.IV%2Band%2BOTC%2BPremium%2B020321.png" width="640" /></a></div><br /><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><br /></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p align="center" style="text-align: center;"><i>[source(s):<span style="mso-spacerun: yes;"> </span>Yahoo, VIX and More]<o:p></o:p></i></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further
Reading:<br /></i><a href="http://vixandmore.blogspot.com/2012/12/the-resurrection-of-tvix.html">The
Resurrection of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/04/tvix-premium-to-indicative-value.html">TVIX
Premium to Indicative Value Creeping Back Up</a><br /><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX
Creation Units Return; What It Means for Investors</a><br /><a href="http://vixandmore.blogspot.com/2012/03/is-tvix-now-just-more-docile-uvxy.html">Is
TVIX Now Just a More Docile UVXY?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/recent-tvix-volume-and-vix-futures.html">Recent
TVIX Volume and VIX Futures Volume</a><br /><a href="http://vixandmore.blogspot.com/2012/02/story-of-vix-etps-relative-to-their.html">The
Story of VIX ETPs Relative to their Intraday Indicative Values</a><br /><a href="http://vixandmore.blogspot.com/2012/02/ups-and-downs-of-new-premium-in-tvix.html">The
Ups and Downs of the New Premium in TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit
Suisse Suspends Creation Units in TVIX: What it Means</a><br /><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a><br /><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go to Zero?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/tvix-topples-vxx-as-highest-volume-vix.html">TVIX
Topples VXX as Highest Volume VIX ETP</a><br /><a href="http://vixandmore.blogspot.com/2012/02/who-is-trading-tvix.html">Who Is
Trading TVIX?</a><br /><a href="http://vixandmore.blogspot.com/2012/02/volatility-becomes-unhinged-on-friday.html">Volatility
Becomes Unhinged on Friday</a><br /><a href="http://vixandmore.blogspot.com/2011/01/tvix-finally-getting-due-as-day-trading.html">TVIX
Finally Getting Its Due As Day Trading Rocket Fuel</a><br /><a href="http://vixandmore.blogspot.com/2011/04/tvix-trades-one-million-shares-for.html">TVIX
Trades One Million Shares for First Time</a><br /><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About
UVXY</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">none<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-7104621457393266422020-10-26T15:25:00.002-07:002020-10-26T15:25:43.607-07:00Performance of the VIX in the Two Weeks Before and After Presidential Elections<p>A convergence of
concerns related to stimulus, elections, <a href="http://vixandmore.blogspot.com/search/label/COVID-19">COVID-19</a> and
earnings (courtesy of a big <a href="http://vixandmore.blogspot.com/search/label/SAP">SAP</a> earnings miss)
caused the VIX to jump 17.8% today. How
much of that was related to the election?
Well…the 9-day <a href="http://vixandmore.blogspot.com/search/label/VIX9D">VIX9D</a> spiked 47.8%
today, now that the election is within the 9-day measurement window for the
first time. The bottom line is that
election uncertainty and anticipated volatility is currently a huge factor in
the mindset of the investor.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">This raises the
question of how jumpy the VIX tends to be in advance of elections and what
happens after the election. If you know
anything about what happens to the VIX around <a href="http://vixandmore.blogspot.com/search/label/Fed%20Days">FOMC announcement
days</a>, you will find considerable similarities when it comes to elections. Specifically, the VIX responds to the
upcoming <a href="http://vixandmore.blogspot.com/search/label/event%20volatility">event
risk</a> by increasing steadily into the event, dropping sharply on the day of
the event and declining even more as the event recedes in the rear-view mirror.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Of course, most
think this election is different. While
that is certainly true, all elections are unique in their own way and yet the
same general principles apply.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Note that in the
graphic below I normalized all the VIX readings from 1992-2016, with the
exception of 2008, which just happened to fall at the height of the Great Recession,
so the 2008 data is excluded, as it would otherwise skew the results.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="text-align: center;"><o:p> <table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://1.bp.blogspot.com/-Q93vcZAIqlU/X5dMSb9LQLI/AAAAAAAAKyY/5ZwA9nos5bsbgUd4yL3bVN21OiwHVxKWwCLcBGAsYHQ/s2638/Normalized%2BComposite%2BVIX%2B10days%2Bbefore%2Band%2Bafter%2Belections.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1192" data-original-width="2638" height="290" src="https://1.bp.blogspot.com/-Q93vcZAIqlU/X5dMSb9LQLI/AAAAAAAAKyY/5ZwA9nos5bsbgUd4yL3bVN21OiwHVxKWwCLcBGAsYHQ/w640-h290/Normalized%2BComposite%2BVIX%2B10days%2Bbefore%2Band%2Bafter%2Belections.png" width="640" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><i>[source(s): CBOE, Yahoo, VIX and More]</i></td></tr></tbody></table></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i><br />Further
Reading:<br /></i><a href="http://vixandmore.blogspot.com/2013/06/the-vix-and-pre-fomc-post-fomc-trades.html">The
VIX and the Pre-FOMC + Post-FOMC Trades</a><br /><a href="http://vixandmore.blogspot.com/2008/12/vix-trends-around-fomc-announcement.html">VIX
Trends Around FOMC Announcement Days</a><br /><a href="http://vixandmore.blogspot.com/2007/01/vix-price-movement-around-fomc-meetings.html">VIX
Price Movement Around FOMC Meetings</a><br /><a href="http://vixandmore.blogspot.com/2016/11/post-election-risk-trending-up-in.html">Post-Election
Risk Trending Up in Treasuries and the Euro, Down in U.S. Stocks</a><br /><a href="http://vixandmore.blogspot.com/2016/11/vix-sets-new-record-with-nine-up-days_37.html">VIX
Sets New Record with Nine Up Days in a Row</a><br /><a href="http://vixandmore.blogspot.com/2016/11/top-vix-crushes-in-history_8.html">Top
VIX Crushes in History</a><br /><a href="https://www.barrons.com/articles/SB50001424053111904184504577518802209654274">How
to Trade Options Around Volatile Events</a> <i>(Barron’s)<br /></i><a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a><br /><a href="http://vixandmore.blogspot.com/2012/12/volatility-during-crises.html">Volatility
During Crises</a><br /><a href="http://vixandmore.blogspot.com/2012/11/fear-poll-fiscal-cliff-fears-spike.html">Fear
Poll: Fiscal Cliff Fears Spike, Concerns About Excessive Central Bank
Intervention Rise</a><br /><a href="http://vixandmore.blogspot.com/2012/11/fiscal-cliff-worries-grow-as-election.html">Fiscal
Cliff Worries Grow As Election Nears</a><br /><a href="http://vixandmore.blogspot.com/2012/05/hollande-discount.html">The
Hollande Discount</a><br /><a href="http://vixandmore.blogspot.com/2010/10/chart-of-week-intrade-and-midterm.html">Chart
of the Week: Intrade and the Midterm Elections</a><br /><a href="http://vixandmore.blogspot.com/2010/07/chart-of-week-intrade-and-control-of.html">Chart
of the Week: Intrade and Control of the House of Representatives</a></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">none<o:p></o:p></span></i></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-57796574324715177892020-10-25T16:25:00.007-07:002020-10-25T22:42:42.116-07:00Updating the Current VIX-Based ETP Landscape<p>There is a lot
going on in the markets, with several themes weighing on volatility or the potential
for more volatility. <a href="http://vixandmore.blogspot.com/search/label/COVID-19">COVID-19</a> cases are
spiking to new highs in Europe and the U.S. and could be at an inflection point
in the U.S. Election uncertainty is also
unnerving investors with the election only nine days away. Lasts and not least, markets are strongly
influenced by the Pelosi-Mnuchin stimulus dance, which appears to have migrated
from a tango to a polka – but at least the music is still playing.</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">In the time
since I was a regular contributor in this space, a lot has happened in the
volatility world and the <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX ETP</a> space
has also changed dramatically. For this
reason, it seems like a good time to update a favored VIX ETP graphic to
reflect the many products that have closed, matured and been moved to the pink
sheets. In keeping with tradition (this
graphic has been published many times in various incarnations since 2010), I
have plotted all of the VIX ETPs with respect to their target maturity (X-axis)
and leverage (Y-axis).</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">It has taken more
a decade, but the bottom line is that the VIX ETP space has essentially been
narrowed down to two dominant products:</p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left;"><b><a href="http://vixandmore.blogspot.com/search/label/VXX">VXX</a> (iPath
Series B S&P 500 VIX Short-Term Futures ETN</b>) – the pioneering +1 long
volatility ETN that <a href="http://vixandmore.blogspot.com/2009/01/first-day-of-trading-in-vxx-and-vxz.html">launched
back on January 30, 2009</a> and has been the dominant product in the VIX ETP space
throughout its lifetime</p></blockquote><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left;"><b><a href="http://vixandmore.blogspot.com/search/label/UVXY">UVXY</a> (ProShares
Ultra VIX Short-Term Futures ETF</b>) – the +1.5x ETF that spent most of its
life as a +2x product and moved to +1.5x following the February 2018 <a href="http://vixandmore.blogspot.com/search/label/Volmageddon">Volmageddon</a>
event which resulted in the termination of XIV</p></blockquote><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">Both VXX and UVXY
trade an average of over 30 million shares per day and both are regularly in
the top 5-10 highest volume ETPs as well as ETP options volume leaders. The remaining VIX ETPs have been largely relegated
to niche product status. Additionally,
Credit Suisse delisted and suspended its VelocityShares ETNs, meaning that the
former <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a>, <a href="http://vixandmore.blogspot.com/search/label/VIIX">VIIX</a> and <a href="http://vixandmore.blogspot.com/search/label/ZIV">ZIV</a> now trade in the
OTC market under the symbols <a href="http://vixandmore.blogspot.com/search/label/TVIXF">TVIXF</a>, <a href="http://vixandmore.blogspot.com/search/label/VIIXF">VIIXF</a> and <a href="http://vixandmore.blogspot.com/search/label/ZIVZF">ZIVZF</a>. For this reason and because of low liquidity
and the increased risk with trading on the OTC “pink sheets.” I have
highlighted these tickers in red.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-OVexC-ZNvGI/X5Zho7YkGKI/AAAAAAAAKx8/IqgUnQNB-esRmZkNA0Qn5uRJ21U3FUejACLcBGAsYHQ/s2048/VIX%2BETP%2Blandscape%2B102520.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1540" data-original-width="2048" height="482" src="https://1.bp.blogspot.com/-OVexC-ZNvGI/X5Zho7YkGKI/AAAAAAAAKx8/IqgUnQNB-esRmZkNA0Qn5uRJ21U3FUejACLcBGAsYHQ/w640-h482/VIX%2BETP%2Blandscape%2B102520.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><i>[source(s): VIX and More]</i></div><p class="MsoNormal" style="text-align: left;"><br /></p><p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><o:p></o:p></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;"><i>Further Reading:<br /></i><a href="http://vixandmore.blogspot.com/2017/01/vix-etps-flash-some-green-in-2016.html">VIX
ETPs Flash Some Green in 2016</a><br /><a href="http://vixandmore.blogspot.com/2016/01/every-single-vix-etp-long-and-short.html">Every
Single VIX ETP (Long and Short) Lost Money in 2015</a><br /><a href="http://vixandmore.blogspot.com/2013/10/performance-of-vix-etps-during-recent.html">Performance
of VIX ETPs During the Recent Debt Ceiling Crisis</a><br /><a href="http://vixandmore.blogspot.com/2013/08/expanded-performance-of-volatility.html">Expanded
Performance of Volatility-Hedged and Related ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/06/performance-of-volatility-hedged-etps.html">Performance
of Volatility-Hedged ETPs</a><br /><a href="http://vixandmore.blogspot.com/2012/04/performance-of-vix-etp-hedges-in.html">Performance
of VIX ETP Hedges in Current Selloff</a><br /><a href="http://vixandmore.blogspot.com/2011/11/ten-months-have-passed-since-last-time.html">Slicing
and Dicing all 31 Flavors of the VIX ETPs</a><br /><a href="http://vixandmore.blogspot.com/2011/01/charting-assets-of-volatility-based.html">Charting
the Assets of the Volatility-Based ETPs</a></p>
<p class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span color="windowtext" style="text-decoration: none; text-underline: none;"><o:p></o:p></span></span></p>
<p align="center" style="text-align: center;"><b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">net short VXX and UVXY at time of writing<o:p></o:p></span></i></p>
<p align="center" style="text-align: center;"><br /></p>Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-55101873206427755432020-03-10T12:26:00.000-07:002020-03-10T12:26:23.443-07:00Looking at Coronavirus Cases per Million, by Country<br />
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
Further to
yesterday’s <a href="http://vixandmore.blogspot.com/search/label/Coronavirus">Coronavirus</a>
(<a href="http://vixandmore.blogspot.com/search/label/COVID-19">COVID-19</a>), post,
<a href="http://vixandmore.blogspot.com/2020/03/tracking-trajectory-and-peak-of.html">Tracking
the Trajectory and Peak of Coronavirus Cases</a>, I want to make sure we are
thinking not just in terms of the absolute number of confirmed cases, but also
cases per million.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
The graphic
below highlights the countries which have been hit hardest on a per capita
basis.<span style="mso-spacerun: yes;"> </span>Using this criterion, <a href="http://vixandmore.blogspot.com/search/label/Iceland">Iceland</a> is the country
where the coronavirus is most prevalent, followed by <a href="http://vixandmore.blogspot.com/search/label/Italy">Italy</a>, <a href="http://vixandmore.blogspot.com/search/label/South%20Korea">South Korea</a>,
<a href="http://vixandmore.blogspot.com/search/label/Iran">Iran</a>, <a href="http://vixandmore.blogspot.com/search/label/China">China</a> and <a href="http://vixandmore.blogspot.com/search/label/Switzerland">Switzerland</a>.<span style="mso-spacerun: yes;"> </span>These six countries stand out as having
passed an inflection point.<span style="mso-spacerun: yes;"> </span>Given the
data out of Western Europe in the past 48 hours, it appears as if <a href="http://vixandmore.blogspot.com/search/label/Spain">Spain</a>, <a href="http://vixandmore.blogspot.com/search/label/Sweden">Sweden</a>, <a href="http://vixandmore.blogspot.com/search/label/France">France</a> and <a href="http://vixandmore.blogspot.com/search/label/Denmark">Denmark</a> are not
far behind.<span style="mso-spacerun: yes;"> </span>The U.S. currently ranks 41<sup>st</sup>
in terms of cases per million, with just 1/100<sup>th</sup> of the penetration in
Iceland.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-Df-A9qBrAB8/XmfpFg4eVRI/AAAAAAAAKmQ/5aEHOlZ4aUsNMVBztgrJHii3GpsoC7I3gCLcBGAsYHQ/s1600/Coronavirus%2BCases%2Bper%2BMillion%2Bby%2BCountry%2B031020.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="748" data-original-width="1600" height="297" src="https://1.bp.blogspot.com/-Df-A9qBrAB8/XmfpFg4eVRI/AAAAAAAAKmQ/5aEHOlZ4aUsNMVBztgrJHii3GpsoC7I3gCLcBGAsYHQ/s640/Coronavirus%2BCases%2Bper%2BMillion%2Bby%2BCountry%2B031020.png" width="640" /></a></div>
<div align="center" style="text-align: center;">
<i>[source(s): Wikipedia, VIX and More]<o:p></o:p></i></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
Assuming the distribution
of new cases continues to trace a parabolic path, being able to reasonably
estimate the terminal penetration rate – which will no doubt vary by country – could
help to set expectations about the progress and timeline of new cases.<br />
<br />
Finally, to follow up on yesterday’s post, I am now dating the first day of 100
new cases in the U.S. at March 7<sup>th</sup>.<span style="mso-spacerun: yes;">
</span>Using the 8-14 day window for 100 new cases to peak new cases means the U.S.
could see peak new cases in the March 15<sup>th</sup> – March 22<sup>nd</sup> time
frame, with an outside shot of the peak extending out to March 29<sup>th</sup>.<span style="mso-spacerun: yes;"> </span>Of course, this projection are merely an extrapolation from the experience in other countries and will be largely dependent upon the rate
at which testing is ramped up in the U.S.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br />
<i>Further Reading:<o:p></o:p></i></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2020/03/tracking-trajectory-and-peak-of.html">Tracking
the Trajectory and Peak of Coronavirus Cases</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2012/12/volatility-during-crises.html">Volatility
During Crises</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2009/07/forces-acting-on-vix.html">Forces
Acting on the VIX</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a><br />
<a href="http://vixandmore.blogspot.com/2007/02/bird-flu-stocks-and-volatility.html">Bird
Flu Stocks and Volatility</a><br />
<a href="http://vixandmore.blogspot.com/2016/11/vix-sets-new-record-with-nine-up-days_37.html">VIX
Sets New Record with Nine Up Days in a Row</a><br />
<a href="http://vixandmore.blogspot.com/2014/10/fear-poll-fedqe-ebola-and-technicals.html">Fear
Poll: Fed/QE, Ebola and Technicals Top Worry List</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2009/04/hogs-gets-slaughtered.html">HOGS
Gets Slaughtered</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span style="color: windowtext; text-decoration: none; text-underline: none;"><o:p></o:p></span></span></div>
<div align="center" style="text-align: center;">
<b><i><br />Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">none<o:p></o:p></span></i></div>
<br />Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-12049946643508731782020-03-09T16:41:00.000-07:002020-03-10T12:49:11.008-07:00Tracking the Trajectory and Peak of Coronavirus Cases<br />
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
I have seen a
lot written about the <a href="http://vixandmore.blogspot.com/search/label/Coronavirus">Coronavirus</a>,
a.k.a. <a href="http://vixandmore.blogspot.com/search/label/COVID-19">COVID-19</a>,
but I have yet to see any informed discussion about the trajectory of cases in
various regions, the cycle time to peak new cases or meaningful predictions
about the future course of the spread of the virus.<br />
<br />
So here are some thoughts on the subject, using historical data from Wikipedia
that is more standardized in time and collection methodology than any other
data I have been able to find on the Web.<span style="mso-spacerun: yes;">
</span>First, I examined the entire history of case data by country and found
inflection points that roughly correspond to 10 new cases and 100 new cases per
day.<span style="mso-spacerun: yes;"> </span>As identification of initial cases
is somewhat problematic given the variable protocols for testing, availability
of testing kits, timing of nearby positive cases, etc. I elected to use the 100
new cases per day threshold.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
It turns out that
there have been seven countries so far that have logged 100 new COVID-19 cases in
a single day.<span style="mso-spacerun: yes;"> </span>In order of reaching that 100
new cases threshold, they are:<span style="mso-spacerun: yes;"> </span><a href="http://vixandmore.blogspot.com/search/label/China">China</a> (January 21<sup>st</sup>),
<a href="http://vixandmore.blogspot.com/search/label/South%20Korea">South Korea</a>
(February 21<sup>st</sup>), <a href="http://vixandmore.blogspot.com/search/label/Italy">Italy</a> (February 26<sup>th</sup>),
<a href="http://vixandmore.blogspot.com/search/label/Iran">Iran</a> (February
27<sup>th</sup>), <a href="http://vixandmore.blogspot.com/search/label/France">France</a>
(March 5<sup>th</sup>), <a href="http://vixandmore.blogspot.com/search/label/Germany">Germany</a> (March 6<sup>th</sup>)
and <a href="http://vixandmore.blogspot.com/search/label/Spain">Spain</a>
(March 6<sup>th</sup>).<span style="mso-spacerun: yes;"> </span>The U.S. has come
close to the 100 new case threshold and may indeed hit that mark today or
tomorrow.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
The graphic
below shows the daily number of new cases in each of the seven 100+ new case
countries.<span style="mso-spacerun: yes;"> </span>Note that it is reasonable to
expect some sort of parabolic pattern for new cases with a steep jump in new
cases that eventually flattens out, peaks and declines in a similar
fashion.<span style="mso-spacerun: yes;"> </span>This pattern probably would
have been the case in China, except that on February 10<sup>th</sup>, China changed
the methodology for counting new “confirmed” cases from relying strictly on the
basis of a positive result from a lab testing kit to cases that included patients
where CT scans for pneumonia allowed for a “confirmed” case clinical diagnosis for likely
COVID-19 cases without having to wait for a lab test and results.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-phNT5v9QGUA/XmbSjHv0JFI/AAAAAAAAKmE/5By04D2jd7sKf12I_V_z4_sVouudAZQHgCLcBGAsYHQ/s1600/Trajectory%2Band%2BPeak%2Bof%2BCoronavirus%2BCases%2B030920.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="730" data-original-width="1405" height="331" src="https://1.bp.blogspot.com/-phNT5v9QGUA/XmbSjHv0JFI/AAAAAAAAKmE/5By04D2jd7sKf12I_V_z4_sVouudAZQHgCLcBGAsYHQ/s640/Trajectory%2Band%2BPeak%2Bof%2BCoronavirus%2BCases%2B030920.png" width="640" /></a></div>
<div align="center" style="text-align: center;">
<i>[source(s): Wikipedia, VIX and More]<o:p></o:p></i></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
To summarize the
data in the graph, three of the four countries that are at least ten days from
the initial 100-case day have seen what appears to be a peak in new cases.<span style="mso-spacerun: yes;"> </span>In China, it was 22 days from 100 cases to
peak new cases, though it is possible that peak new cases might have been 14
days if China had not expanded the methodology for defining new cases to
include a clinical diagnosis.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
In South Korea, a
concerted effort to ramp up testing as quickly as possible is probably
responsible for the fact that South Korea saw a peak in new cases just 9 days
after the first 100-case day.<br />
<br />
While the peak in new case data in Iran should be considered provisional, the
current peak in new cases was only 8 days after the first 100-case day, perhaps
aided by the steep trajectory in new cases during the first five days.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
Italy is the
outlier in that there are no signs of a peak some ten days after the first
100-case day, though it is reasonable to expect that the newly implemented national
lockdown and public gathering measures will help to slow the rate of new cases
going forward.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
The remaining
three Western European countries – France, Germany and Spain are only 3-4 days
into their post-100 timeline, so it is too early to talk about a peak.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
The first quick
takeaway is that the time from 100 new cases to peak new cases seems to cluster
around 8-14 days or perhaps 8-22 days if you overlook the changes in the
methodology for counting new cases in China.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
Second, with the
U.S. new case count hovering just below 100, it is reasonable to expect that
the 8-14 day window for new cases will also apply to the U.S. putting a likely
peak count in the March 17<sup>th</sup> – March 24<sup>th</sup> time frame, with an
outside shot of the peak extending out to April 1<sup>st</sup>.<span style="mso-spacerun: yes;"> </span>This assumes, of course, that the U.S.
follows a similar trajectory to the other countries.<span style="mso-spacerun: yes;"> </span>Along those lines, it will be interesting to
see if Italy’s new cases peak during the next week.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
Obviously, there
are a number of factors that can affect how successful a country can be in
containing the COVID-19 outbreak, conduct an appropriate number of tests and other
factors. Japan, for instance, had its first case almost two months ago and has
yet to approach 100 new cases in a day.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
More to come on
the COVID-19 global outbreak, the VIX, volatility and more.<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br />
Further Reading:<o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2012/12/volatility-during-crises.html">Volatility
During Crises</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2009/07/forces-acting-on-vix.html">Forces
Acting on the VIX</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a><br />
<a href="http://vixandmore.blogspot.com/2007/02/bird-flu-stocks-and-volatility.html">Bird
Flu Stocks and Volatility</a><br />
<a href="http://vixandmore.blogspot.com/2016/11/vix-sets-new-record-with-nine-up-days_37.html">VIX
Sets New Record with Nine Up Days in a Row</a><br />
<a href="http://vixandmore.blogspot.com/2014/10/fear-poll-fedqe-ebola-and-technicals.html">Fear
Poll: Fed/QE, Ebola and Technicals Top Worry List</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<a href="http://vixandmore.blogspot.com/2009/04/hogs-gets-slaughtered.html">HOGS
Gets Slaughtered</a><o:p></o:p></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
<br /></div>
<div class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt;">
For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><br />
<br />
<span class="MsoHyperlink"><span style="color: windowtext; text-decoration: none; text-underline: none;"><o:p></o:p></span></span></div>
<div align="center" style="text-align: center;">
<b><i>Disclosure(s): </i></b><i><span style="mso-bidi-font-weight: bold;">none<o:p></o:p></span></i></div>
<br />Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-12755794732978839902017-05-02T18:55:00.000-07:002017-05-03T08:31:59.295-07:00Euro Zone VSTOXX ETNs Land on U.S. Beaches!<div class="MsoNormal">
Think the market
is too complacent about this weekend’s election in <a href="http://vixandmore.blogspot.com/search/label/France">France</a>? Worried that the <a href="http://vixandmore.blogspot.com/search/label/euro">euro</a> area is going
to crumble under the weight of <a href="http://vixandmore.blogspot.com/search/label/Italy">Italy</a>’s struggles? Convinced that <a href="http://vixandmore.blogspot.com/search/label/Greece">Greece</a>, <a href="http://vixandmore.blogspot.com/search/label/Portugal">Portugal</a> or <a href="http://vixandmore.blogspot.com/search/label/Spain">Spain</a> are just one
more kicked can away from a disaster?<o:p></o:p></div>
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As of tomorrow,
investors in the U.S. will have another way to translate these ideas into
actionable trades with tomorrow’s launch of two new exchange-traded notes (ETNs)
– <a href="http://vixandmore.blogspot.com/search/label/EVIX">EVIX</a> (long
euro zone volatility) and <a href="http://vixandmore.blogspot.com/search/label/EXIV">EXIV</a> (inverse euro
zone volatility) – from VelocityShares and UBS that put a European face on existing U.S. VIX-based products such as <a href="http://vixandmore.blogspot.com/search/label/VIIX">VIIX</a> and perennial
favorite <a href="http://vixandmore.blogspot.com/search/label/XIV">XIV</a>.<o:p></o:p></div>
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Based on the <a href="http://vixandmore.blogspot.com/search/label/VSTOXX">VSTOXX</a>, the VIX-like
volatility index for the <a href="https://www.stoxx.com/index-details?symbol=sx5e">EURO STOXX 50 Index</a>
of 50 blue-chip stocks from 11 euro zone countries, EVIX and EXIV should be
familiar to those who are knowledgeable about <a href="http://vixandmore.blogspot.com/search/label/VXX">VXX</a> and VIIX on the
long volatility side as well as XIV and <a href="http://vixandmore.blogspot.com/search/label/SVXY">SVXY</a> on the short
volatility side. EVIX and EXIV are based
on VSTOXX futures and have a target maturity of 30 days – a maturity that is
maintained by rolling a portion of the portfolio each day and therefore subjecting
both products to the vagaries of <a href="http://vixandmore.blogspot.com/search/label/contango">contango</a> and <a href="http://vixandmore.blogspot.com/search/label/backwardation">backwardation</a>. In the event these are terms you are not
familiar with, I strongly recommend that you click on the links above and
educate yourself. Believe it or not, this
is the ninth year I have been talking about the <a href="http://vixandmore.blogspot.com/search/label/VIX%20futures">VIX futures</a>
<a href="http://vixandmore.blogspot.com/search/label/term%20structure">term
structure</a>, negative <a href="http://vixandmore.blogspot.com/search/label/roll%20yield">roll yield</a>,
contango and backwardation. (Those who
have been paying attention since the early days of VXX and <a href="http://vixandmore.blogspot.com/search/label/VXZ">VXZ</a> have no doubt
profited mightily from this knowledge.)<o:p></o:p></div>
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The beauty of
EVIX and EXIV is that these products create so much flexibility for investors
who maintain a global, cross-asset class view of volatility. In the run-up to the first round of the French
election, for example, VSTOXX spiked dramatically and pushed the VSTOXX:VIX
ratio below 1.00, creating some interesting arbitrage opportunities and/or
pairs trades in the process. Now
investors can trade euro zone volatility against U.S. volatility, use targeted
hedges for risk that is specific to the euro zone or speculate more easily
about the direction of volatility in the euro zone. <o:p></o:p><br />
<br />
I encourage everyone to study the <a href="http://app.velocitysharesetns.com/files/prospectus/EVIX_and_EXIV_Prospectus_1.pdf">EVIX and EXIV prospectus</a> closely.</div>
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This is a huge
development in the volatility space and if options on EVIX and EXIV follow
later this week, as expected, the volatility trading landscape will be much richer
and more diverse. <o:p></o:p></div>
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Now if we can
only get liquid volatility products for gold volatility (<a href="http://vixandmore.blogspot.com/search/label/GVZ">GVZ</a>) and crude oil
volatility (<a href="http://vixandmore.blogspot.com/search/label/OVX">OVX</a>),
I won’t even have to set out a stocking next to the chimney this Christmas. <o:p></o:p></div>
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While I’m at it,
why are there no options on XIV? This is
such a popular high-beta product that it deserves options so traders can
express a broader range of opinions on volatility. Readers, it never hurts to nudge the CBOE on
these issues. An outpouring of popular
sentiment can make a difference.<o:p></o:p></div>
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As the risk of
charging off into full rant mode, I feel compelled to say that I hope
volatility investors know a good thing when they see it. It is a shame that VXST futures did not
attract enough attention to hang around and that <a href="http://vixandmore.blogspot.com/search/label/VMAX">VMAX</a> and <a href="http://vixandmore.blogspot.com/search/label/VMIN">VMIN</a> are not
trading with higher volumes. One of the
best volatility products ever created, <a href="http://vixandmore.blogspot.com/search/label/ZIV">ZIV</a>, nearly <a href="http://vixandmore.blogspot.com/2012/01/ziv-undeservedly-neglected.html">died
of neglect</a> before investors finally paid it some attention.<o:p></o:p></div>
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As I see it,
EVIX and EXIV as well as VMAX and VMIN are test cases for the future of the breadth
of volatility products. If you would
like a diverse tapestry of volatility products in the future, it would not hurt
to “buy local” volatility ETPs rather than sticking to the handful of already
successful products. If you don’t vote
with your feet, you had better be happy playing in a small and rather limited
sandbox. I am fond of
saying, “In volatility, there is opportunity!” – but that opportunity is a
function of the richness of the various volatility product platforms.</div>
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Last but not
least, I know Eurozone and eurozone are the preferred spellings, but I am
sticking to the two-word “euro zone” with as much stubbornness as I can
muster. What can I say, I am short
convention…<o:p></o:p></div>
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<br />
Further Reading:</div>
<div class="MsoNormal">
<ul>
<li><a href="http://vixandmore.blogspot.com/2012/06/evolution-of-european-equity-risk.html">The
Evolution of European Equity Risk</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/06/euro-volatility-and-risk.html">Euro
Volatility and Risk</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/06/greek-elections-and-future-of-euro.html">Greek
Elections and the Future of the Euro</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/05/handicapping-chances-of-greece-dropping.html">Handicapping
the Chances of Greece Dropping the Euro</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/05/chart-of-week-vstoxx-vix-and-risk-of.html">Chart
of the Week: VSTOXX, VIX and the Risk of Global Contagion</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/05/hollande-discount.html">The
Hollande Discount</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/12/expectations-surprises-and-fear-in-2011.html">Expectations,
Surprises and Fear in 2011</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/11/chart-of-week-european-stocks-holding.html">Chart
of the Week: European Stocks Holding Up Well</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/05/recent-performance-divergence-in.html">Recent
Performance Divergence in European ETFs</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/02/chart-of-week-where-and-when-will-euro.html">Where
and When Will the Euro Bottom?</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/02/greece-spain-and-pulse-of-european.html">Greece,
Spain and the Pulse of European Anxiety</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/02/are-you-watching-greece.html">Are
You Watching Greece?</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/07/guest-columnist-at-striking-price-for.html">Guest
Columnist at The Striking Price for Barron’s: How to Spot Risk Early</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/11/xiv-and-ziv-are-huge-success-stories.html">XIV
and ZIV Are Huge Success Stories Two Years After Launching</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/01/ziv-undeservedly-neglected.html">ZIV
Undeservedly Neglected</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/11/impressive-launch-for-sextet-of-new.html">Impressive
Launch for Sextet of New Volatility ETNs from VelocityShares</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/05/vmax-and-vmin-poised-to-be-most.html">VMAX
and VMIN Poised to Be Most Important VIX ETP Launch in Years</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/10/why-vxx-is-not-good-short-term-or-long.html">Why
VXX Is Not a Good Short-Term or Long-Term Play</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/05/vxx-calculations-vix-futures-and-time.html">VXX
Calculations, VIX Futures and Time Decay</a></li>
<li><a href="http://vixandmore.blogspot.com/2008/08/evolution-of-volatility-index-family.html">The Evolution of the Volatility Index Family Tree</a></li>
</ul>
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For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a></div>
<br />
<div align="center" style="text-align: center;">
<b><i>Disclosure(s): </i></b><i>net short VXX and VMAX; net long
XIV and ZIV at time of writing. The CBOE is an advertiser on VIX and More.<o:p></o:p></i></div>
Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-86958658141007953042017-02-27T12:41:00.000-08:002017-02-27T22:50:43.989-08:00Ten Years Since the Biggest VIX Spike Ever<div class="MsoNormal">
Ten years ago
today, we witnessed that largest one-day <a href="http://vixandmore.blogspot.com/search/label/VIX%20spikes">VIX spike</a>
in the nearly three decade history of the VIX.
On that day, the VIX rallied from a prior close of 11.15 to 18.31 – a 64.2%
gain. The move came in conjunction with
a 3.5% decline in the SPX (large, but nothing like what would follow during the
next two years) and followed overnight concerns related to the Chinese
government raising interest rates to discourage speculation. The fears in <a href="http://vixandmore.blogspot.com/search/label/China">China</a> were largely
responsible for a 8.8% loss in the Shanghai Composite Index and a 9.9% loss in
the FTSE/Xinhua China 25 index that is the basis for the popular Chinese ETF, <a href="http://vixandmore.blogspot.com/search/label/FXI">FXI</a>.<o:p></o:p></div>
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<br /></div>
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In retrospect,
the biggest VIX spike of all was a short-lived phenomenon whose fundamental and
technical underpinnings turned out to pose no lasting threats. As is often the case, traders who faded this
move (and keep in mind there were no <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX ETPs</a>
available at that time) and bet on <a href="http://vixandmore.blogspot.com/search/label/mean%20reversion">mean
reversion</a> cleaned up on that trade.<o:p></o:p></div>
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So, did this
move in 2007 provide a hint as to what would follow in <a href="http://vixandmore.blogspot.com/search/label/2008">2008</a>? As I see it, the timing was merely a
coincidence.<o:p></o:p></div>
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It may not be a
coincidence, however, that the biggest VIX spike in history helped to usher in
the golden era of VIX spikes, with 15 of the top 22 one-day VIX spikes of all
time having occurred during the past decade, as is reflected in the graphic
below. Of course, most of the spike in
VIX spike activity was the result of the Great Recession and some of the “<a href="http://vixandmore.blogspot.com/search/label/disaster%20imprinting">disaster
imprinting</a>” that followed such a severe shock to many investor psyches. <br /><br /><o:p></o:p></div>
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-bGBNq6oE9S0/WLUdro1Qr7I/AAAAAAAAJ_o/NtIEQj0fsy80yGMyqu3opIIiDQIAK5IiACLcB/s1600/VIX%2Bspikes%2B1990-2017%2B022717.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="310" src="https://4.bp.blogspot.com/-bGBNq6oE9S0/WLUdro1Qr7I/AAAAAAAAJ_o/NtIEQj0fsy80yGMyqu3opIIiDQIAK5IiACLcB/s640/VIX%2Bspikes%2B1990-2017%2B022717.png" width="640" /></a></div>
</div>
<div align="center" class="MsoNormal" style="tab-stops: center 3.0in left 350.0pt; text-align: center;">
<i>[source(s): VIX and More]<o:p></o:p></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Some may look
around at a VIX that is not too much different now than it was a decade ago and
wonder what it might take to trigger another 64% jump in the VIX. Certainly there is a huge policy uncertainty
overhang at the moment, lots of political (and related economic) uncertainty in
Europe and there are always some black swans lurking just out of our
sightlines.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For now,
however, will just have to live with that eerie, unsettling feeling that often
accompanies low volatility and wait for another <a href="http://vixandmore.blogspot.com/2007/01/what-my-dog-can-tell-us-about_947.html">bump
in the night</a> before we reassess the volatility landscape.<o:p></o:p></div>
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<br />
Further Reading:</div>
<div class="MsoNormal">
</div>
<ul>
<li><a href="http://vixandmore.blogspot.com/2012/02/biggest-vix-spike-ever-retrospective.html">The
Biggest VIX Spike Ever: A Retrospective</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/04/lessons-from-post-227-vix-price-action.html">Lessons
from the Post-2/27 VIX Price Action</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/02/four-ways-to-play-vix-options-following.html">Four
Ways to Play VIX Options Following a Record 64% Move to 18.31</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/02/how-to-think-about-day-after-executive_27.html">How
to Think About the Day After: Executive Summary</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/02/birthday-party.html">Birthday
Party?</a></li>
<li><a href="http://vixandmore.blogspot.com/2015/08/last-two-days-are-5-and-6-one-day-vix.html">Last
Two Days Are #5 and #6 One-Day VIX Spikes in History</a></li>
<li><a href="http://vixandmore.blogspot.com/2015/01/2014-had-third-highest-number-of-20-vix.html">2014
Had Third Highest Number of 20% VIX Spikes</a></li>
<li><a href="http://vixandmore.blogspot.com/2015/06/todays-34-vix-spike-and-what-to-expect.html">Today’s
34% VIX Spike and What to Expect Going Forward</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/02/all-time-vix-spike-11-and-treasure.html">All-Time
VIX Spike #11 (and a treasure trove of VIX spike data)</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/08/vix-sets-some-new-records-suggesting.html">VIX
Sets Some New Records, Suggesting Volatility Near Peak</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/06/highest-intraday-vix-readings.html">Highest
Intraday VIX Readings</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/04/short-term-and-long-term-implications.html">Short-Term
and Long-Term Implications of the 30% VIX Spike</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/10/vix-spike-of-35-in-four-days-is-short.html">VIX
Spike of 35% in Four Days Is Short-Term Buy Signal</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/11/availability-bias-and-disaster.html">Availability
Bias and Disaster Imprinting</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/11/vix-data-to-support-availability-bias.html">VIX
Data to Support Availability Bias and Disaster Imprinting Hypothesis</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/11/vixvxv-ratio-availability-bias-and.html">The
VIX:VXV Ratio, Availability Bias and Disaster Imprinting</a></li>
</ul>
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For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><span style="color: windowtext;"><o:p></o:p></span></span></div>
<div align="center" style="text-align: center;">
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<div align="center" style="text-align: center;">
<b><i>Disclosure(s): </i></b><i>none<o:p></o:p></i></div>
Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-50152674585367897082017-02-26T11:56:00.001-08:002017-02-26T11:56:31.813-08:00The VIX Summit: CBOE RMC (March 8-10 in Dana Point, CA)<div class="MsoNormal">
I often get
asked about where to go to learn more about the VIX and volatility. Well, if there is one event each year that
falls in the absolutely-do-not-miss category, it is the <a href="https://www.cboermcus.com/">CBOE’s annual Risk Management Conference</a>,
which is back in Dana Point, California this year from March 8-10. It should be noted that while this is the 33<sup>rd</sup>
annual incarnation of this event in the U.S., in the past few years, <a href="http://www.cboermceurope.com/">RMC-Europe</a> (September 11-13, 2017 in Hertfordshire,
U.K.) and <a href="http://www.cboermcasia.com/">RMC-Asia</a> (December 5-6, 2017
in Hong Kong) now give VIX aficionados three different opportunities to gather
around the globe and immerse themselves in all things volatility.<o:p></o:p></div>
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This year, Ed
Thorp is the keynote speaker and as I have yet to hear him speak in person, I
am very much looking forward to his talk on “Position Sizing and Relation to
Risk Management.” Another featured
speaker is Benjamin Bowler, Global Head of Equity Derivatives Research, Bank of
America Merrill Lynch, whose talk is titled, “Post-Central Bank Volatility:
More Risk But More Alpha.” Two of my
favorite perennial speakers are back again this year: Maneesh Deshpande, Managing Director and
Global Head of Equity Derivatives Strategy, Barclays is a panelist for “Impact
of Flows on Cash and Derivatives Markets: Myths and Realities,” <o:p></o:p>while Rocky
Fishman, Equity Derivatives Strategy, Deutsche Bank Securities Inc., is a
panelist for “Options Out of This Country.”</div>
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Also, Ed
Provost, President & Chief Operating Officer, CBOE Holdings, Inc. will be
there to kick off the proceedings and if history is any guide, this is when we
are most likely to get some insight into any upcoming or recently launched CBOE
products.<o:p></o:p></div>
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For more
information, check out the <a href="http://archive.cboermcus.com/uploads/5/2/6/5/52653589/2017_rmc_us_agenda.pdf">full
agenda</a> or <a href="https://cboermc.attendeetrack.com/cboe-risk-management-conference-us/register/">register
here</a>.<o:p></o:p></div>
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While the RMC content
is guaranteed to be world class, this is also the greatest gathering of
volatility practitioners, academics and other manner of VIXophiles that I am
aware of. In short, if you speak VIX and
are looking to find your lost tribe, here they are. This is why I like to informally refer to the
RMC as The VIX Summit.<o:p></o:p></div>
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While the CBOE
has provided excellent coverage of this event on Twitter and on the <a href="http://www.cboe.com/blogs">CBOE blog</a>, I will do what I can to pass
along real-time and near real-time commentary as well.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
I must admit
that one of the most interesting conversations I have ever had on the VIX was at with the creator of the
product, <a href="http://www.owen.vanderbilt.edu/faculty-and-research/faculty-directory/faculty-profile.cfm?id=191">Robert
Whaley</a>, who regaled me with some interesting stories related to the origin
of the VIX at the 2015 CBOE RMC. I trust
this year will deliver some equally compelling memories.<o:p></o:p></div>
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<br /></div>
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Last but not
least, if you see me this year, please stop and say hello.<o:p></o:p></div>
<div class="MsoNormal">
<br />
Further Reading:<o:p></o:p></div>
<div class="MsoNormal">
</div>
<ul>
<li><a href="https://vixandmore.blogspot.com/2014/03/cboe-rmc-2014-retrospective.html">CBOE
RMC 2014: A Retrospective</a></li>
<li><a href="http://vixandmore.blogspot.com/2014/03/cboe-risk-management-conference-update.html">CBOE
Risk Management Conference Update</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/03/some-thoughts-on-cboe-rmc.html">Some
Thoughts on the CBOE RMC</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/02/best-vix-conference-of-year-try-cboe-rmc.html">Best
VIX Conference of the Year? Try the CBOE RMC</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/02/upcoming-2012-cboe-risk-management.html">The
Upcoming 2012 CBOE Risk Management Conference</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/03/vix-summit-aka-cboe-risk-management.html">The
VIX Summit, a.k.a. the CBOE Risk Management Conference</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/09/best-vixvolatilityrisk-conference-of.html">Best
VIX/Volatility/Risk Conference of 2013?</a></li>
</ul>
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<div align="center" style="text-align: center;">
For those who may be interested, you
can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><span class="MsoHyperlink"><o:p></o:p></span></div>
<div align="center" style="text-align: center;">
<br /></div>
<br />
<div align="center" style="text-align: center;">
<b><i>Disclosure(s): </i></b><i>the CBOE is an advertiser on VIX and More<o:p></o:p></i></div>
Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-34905730476103314142017-02-26T10:54:00.000-08:002017-02-26T14:45:03.811-08:00Clustering of Volatility Spikes<div class="MsoNormal">
Last week, my <a href="http://vixandmore.blogspot.com/2017/02/putting-low-stock-volatility-to-good.html">Putting
Low Stock Volatility to Good Use (Guest Columnist at Barron’s)</a> triggered a
bunch of emails related to the clustering of <a href="http://vixandmore.blogspot.com/search/label/low%20volatility">low
volatility</a>. Most readers expressed
an interest in the phenomenon of <a href="http://vixandmore.blogspot.com/search/label/mean%20reversion">volatility
clusters</a> occurring in both high and low volatility environments and were curious
about the differences between high and low volatility clusters.<o:p></o:p></div>
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When it comes to
measuring volatility clusters I am of the opinion that realized or <a href="http://vixandmore.blogspot.com/search/label/historical%20volatility">historical
volatility</a> is a more important measurement than <a href="http://vixandmore.blogspot.com/search/label/implied%20volatility">implied
volatility</a> measurements, such as is provided by the VIX. When I think in terms of <a href="http://vixandmore.blogspot.com/search/label/VIX%20spikes">VIX spikes</a>,
I generally focus on two single-day realized volatility thresholds: a 2% decline in the S&P 500 Index and a
4% decline.<o:p></o:p></div>
<div class="MsoNormal">
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<div class="MsoNormal">
The graphic below
is in many respects the inverse of the graphic in <a href="http://vixandmore.blogspot.com/2017/02/putting-low-stock-volatility-to-good.html">Putting
Low Stock Volatility to Good Use (Guest Columnist at Barron’s)</a> – and this
should come as no surprise. Simply
stated: while both high volatility and low volatility cluster in the short-term, volatility regimes tend to persist for several
years, so it is very rare to see a clustering of high and low volatility in the
same years. This is exactly the
principle I laid out more than ten years ago regarding <a href="http://vixandmore.blogspot.com/search/label/echo%20volatility">echo
volatility</a> in <a href="http://vixandmore.blogspot.com/2007/01/what-my-dog-can-tell-us-about_947.html">What
My Dog Can Tell Us About Volatility</a>.<o:p></o:p></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-9hV6aUZZMzw/WLMju7ow-HI/AAAAAAAAJ_M/clAYzulkoTAZFOcstjWC1bIPDl-IN3JdgCEw/s1600/2pct%2Band%2B4pct%2Bdaily%2Bmoves%2Bin%2BSPX%2Bby%2Byear%2Bfrom%2B1990%2B022617.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="288" src="https://3.bp.blogspot.com/-9hV6aUZZMzw/WLMju7ow-HI/AAAAAAAAJ_M/clAYzulkoTAZFOcstjWC1bIPDl-IN3JdgCEw/s640/2pct%2Band%2B4pct%2Bdaily%2Bmoves%2Bin%2BSPX%2Bby%2Byear%2Bfrom%2B1990%2B022617.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<i>[source(s): CBOE, Yahoo, VIX and More]</i></div>
<div align="center" style="text-align: center;">
<i><br /></i></div>
<div class="MsoNormal">
Note also that
in spite of all the talk in the past few years of the potential implosion of
the euro zone, a hard landing in <a href="http://vixandmore.blogspot.com/search/label/China">China</a>, central
banks across the globe creating the seeds of our destruction, increasingly
bipartisan politics creating deep divides across the nation, etc., etc. –
volatility has been relatively mild during the past 5-6 years.<o:p></o:p></div>
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<br /></div>
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The interesting
thing about volatility regimes is that they eventually transition from low volatility
environments to high volatility environments and vice versa and create what I
call <a href="http://vixandmore.blogspot.com/search/label/VIX%20macro%20cycles">VIX
macro cycles</a> in the process. The <a href="http://vixandmore.blogspot.com/search/label/volatility%20transition%20phase">volatility
transition phases</a> are some of the most interesting times in the market and
can certainly be some of the most profitable.
These inflection points are sure to be a target of some of my future
writing on volatility.<o:p></o:p></div>
<div class="MsoNormal">
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<div class="MsoNormal">
So, as <i>VIX and More</i> sails off into its second
decade of publication, I vow to flesh out some of my evolving thinking on subjects
I have touched upon above (some of which have lain dormant in this space for
several years) at the same time I charge off into new areas. While I will continue to have a laser focus
on volatility (particularly its global, multi-asset class aspects), it is time
to pay more attention to the “<a href="http://vixandmore.blogspot.com/search/label/and%20More">and More</a>”
portion of this title of this blog and make a push into new frontiers. Said another way: my thinking likes to cluster, but it likes to
spike as well.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Finally, most
posts tend to touch on one or two key ideas, so I typically put a half dozen or
so links below that I refer to as “Related posts.” Today, it seems as if I have touched briefly
on so many subjects that more links (I’m sure today’s is a new record) seem
appropriate and instead of referring to these as related posts, they are now
officially Further Reading going forward.
Enjoy!<o:p></o:p></div>
<div class="MsoNormal">
<br />
Further Reading:</div>
<div class="MsoNormal">
</div>
<ul>
<li><a href="http://vixandmore.blogspot.com/2017/02/putting-low-stock-volatility-to-good.html">Putting
Low Stock Volatility to Good Use (Guest Columnist at Barron’s)</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/01/what-my-dog-can-tell-us-about_947.html">What
My Dog Can Tell Us About Volatility</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/12/my-low-volatility-prediction-for-2016.html">My
Low Volatility Prediction for 2016: Both Idiocy and Genius</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/12/what-is-historical-volatility.html">What
Is Historical Volatility?</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/12/calculating-centered-and-non-centered.html">Calculating
Centered and Non-centered Historical Volatility</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/05/rule-of-16-and-vix-of-40.html">Rule
of 16 and VIX of 40</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/10/shrinking-vix-macro-cycles.html">Shrinking
VIX Macro Cycles</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/09/vix-macro-cycles-and-new-floor-in-vix.html">Chart
of the Week: VIX Macro Cycles and a New Floor in the VIX</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/04/new-vix-macro-cycle-picture.html">The
New VIX Macro Cycle Picture</a></li>
<li><a href="http://vixandmore.blogspot.com/2008/10/recent-volatility-and-vix-macro-cycles.html">Recent
Volatility and VIX Macro Cycles</a></li>
<li><a href="http://vixandmore.blogspot.com/2008/03/vix-macro-cycle-update.html">VIX
Macro Cycle Update</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/12/was-2007-beginning-of-new-era-in.html">Was
2007 the Beginning of a New Era in Volatility?</a></li>
<li><a href="http://vixandmore.blogspot.com/2007/09/vix-macro-cycles.html">VIX Macro
Cycles</a></li>
<li><a href="http://vixandmore.blogspot.com/2015/08/last-two-days-are-5-and-6-one-day-vix.html">Last
Two Days Are #5 and #6 One-Day VIX Spikes in History</a></li>
<li><a href="http://vixandmore.blogspot.com/2015/01/2014-had-third-highest-number-of-20-vix.html">2014
Had Third Highest Number of 20% VIX Spikes</a></li>
<li><a href="http://vixandmore.blogspot.com/2015/06/todays-34-vix-spike-and-what-to-expect.html">Today’s
34% VIX Spike and What to Expect Going Forward</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/02/all-time-vix-spike-11-and-treasure.html">All-Time
VIX Spike #11 (and a treasure trove of VIX spike data)</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/02/biggest-vix-spike-ever-retrospective.html">The
Biggest VIX Spike Ever: A Retrospective</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/08/vix-sets-some-new-records-suggesting.html">VIX
Sets Some New Records, Suggesting Volatility Near Peak</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/06/highest-intraday-vix-readings.html">Highest
Intraday VIX Readings</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/04/short-term-and-long-term-implications.html">Short-Term
and Long-Term Implications of the 30% VIX Spike</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/10/vix-spike-of-35-in-four-days-is-short.html">VIX
Spike of 35% in Four Days Is Short-Term Buy Signal</a></li>
<li><a href="http://vixandmore.blogspot.com/2008/10/vxo-chart-from-1987-1988-and.html">VXO
Chart from 1987-1988 and Explanation of VIX vs. VXO</a></li>
<li><a href="http://vixandmore.blogspot.com/2008/03/volatility-history-lesson-1987.html">Volatility
History Lesson: 1987</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/12/volatility-during-crises.html">Volatility
During Crises</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/04/chart-of-week-vxv-and-systemic-failure.html">Chart
of the Week: VXV and Systemic Failure</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/06/euro-volatility-and-risk.html">Euro
Volatility and Risk</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/06/evolution-of-european-equity-risk.html">The
Evolution of European Equity Risk</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/07/forces-acting-on-vix.html">Forces
Acting on the VIX</a></li>
<li><a href="http://vixandmore.blogspot.com/2008/10/conceptual-framework-for-volatility.html">A
Conceptual Framework for Volatility Events</a></li>
</ul>
<div align="center" style="text-align: center;">
For those who may be interested, you
can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><br />
<b><i><br /></i></b>
<b><i>Disclosure(s): </i></b><i>none<o:p></o:p></i></div>
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Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-86955209597620879082017-02-20T22:21:00.000-08:002017-02-20T23:32:41.627-08:00SPX 1, 2 and 3-Year Returns Following Top and Bottom Five (and Ten) VIX Average Annual Readings<div class="MsoNormal" style="text-align: left;">
On Saturday, I posted <a href="http://vixandmore.blogspot.com/2017/02/putting-low-stock-volatility-to-good.html">Putting
Low Stock Volatility to Good Use (Guest Columnist at Barron’s)</a> and used
that opportunity to expand upon some of the points I raised in my <span style="font-family: "times new roman" , serif; font-size: 12.0pt;">February 18<sup>th</sup> </span>column
for <a href="http://www.barrons.com/">Barron’s</a>. Specifically, I addressed the issue of the <a href="http://vixandmore.blogspot.com/search/label/volatility%20clusters">clustering
of low volatility</a> and used a graphic to show that when the VIX closes
below 12, it tends to persist in these low readings, clustering for several
years, before remaining above 12 for even longer periods during high volatility
regimes. </div>
<div class="MsoNormal">
<br />
Another claim I made in the Barron’s article (<a href="http://www.barrons.com/articles/putting-low-stock-volatility-to-good-use-1487399145">Putting
Low Stock Volatility to Good Use</a>) that I thought might benefit from a
little graphical support was my contention:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; tab-stops: center 3.0in left 350.0pt;">
<i>“VIX data suggests the low volatility
provides a foundation for extended bullish moves in stock. Look at the five
highest and lowest average annual VIX readings and calculate the performance of
the Standard & Poor’s 500 index one, two, and three years after the VIX
extremes. After one year, the S&P performance following the low VIX is
about 20% higher than after the high VIX. For two years, the difference jumps
to 40% and by the third year the cumulative performance differential is
approximately 90%. Wariness aside, low volatility begets low volatility and is
generally bullish for stocks.”<o:p></o:p></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now there are
two ways to compare percentages and the best way for me to illustrate this is
with an example. If we are comparing 5%
with 4% is the 5% value 25% higher than 4% or is it 1% higher? You can make a case for either comparison,
one of which is made with division and is more of a pure percentage calculation, while the other which is made by
subtraction and is perhaps best thought of in terms of percentage points. In the Barron’s article, I
used the division/percentage method, which is the norm when comparing numbers that are not
percentages in and of themselves. This time around I will try
to minimize confusion and use the subtraction/percentage points approach instead.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the first of
the two graphics below I have calculated the SPX 1-year, 2-year and 3-year
returns following the years with the five highest average VIX values (2008,
2009, 2002, 2001 and 1998) with a dashed black line as well as the years with
the five lowest average VIX values (1994, 1993, 2006, 2005 and 1994) with a
solid double blue line. In all three time
frames, the better returns followed the lower VIX readings and I used a green
area series to show the (percentage point) difference.<br />
<br />
<o:p></o:p></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-YctgNmseFr0/WKvbVitNymI/AAAAAAAAJ9k/lTrymwDgMkEwGXGBBZQ4figmfGrNI0czQCLcB/s1600/SPX%2BReturns%2B1%252C2%2Band%2B3%2Byrs%2Bafter%2BVIX%2B5%2Bhighest%2Band%2Blowest%2Bavg%2Bannual%2Breadings.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="366" src="https://4.bp.blogspot.com/-YctgNmseFr0/WKvbVitNymI/AAAAAAAAJ9k/lTrymwDgMkEwGXGBBZQ4figmfGrNI0czQCLcB/s640/SPX%2BReturns%2B1%252C2%2Band%2B3%2Byrs%2Bafter%2BVIX%2B5%2Bhighest%2Band%2Blowest%2Bavg%2Bannual%2Breadings.png" width="640" /></a></div>
<div align="center" style="text-align: center;">
<i>[source(s): CBOE, Yahoo, VIX and More]<o:p></o:p></i></div>
<div align="center" style="text-align: center;">
<i><br /></i></div>
<div class="MsoNormal">
For comparison
purposes, in the second graphic below I have plotted the same SPX 1-year,
2-year and 3-year returns following the years with the ten highest average VIX
values as well as the years with the ten lowest average VIX values. Once again, in all three time frames, the
better returns followed the lower VIX readings, though in this instance the
performance gap between the lower VIX readings and higher VIX readings is
somewhat reduced.<br />
<br />
<o:p></o:p></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-UDG5wBfU4nQ/WKvbdWnalsI/AAAAAAAAJ9o/1wbsQShxUJMY_kullRY4-iA5YRTW2_5RQCLcB/s1600/SPX%2BReturns%2B1%252C2%2Band%2B3%2Byrs%2Bafter%2BVIX%2B10%2Bhighest%2Band%2Blowest%2Bavg%2Bannual%2Breadings.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="366" src="https://3.bp.blogspot.com/-UDG5wBfU4nQ/WKvbdWnalsI/AAAAAAAAJ9o/1wbsQShxUJMY_kullRY4-iA5YRTW2_5RQCLcB/s640/SPX%2BReturns%2B1%252C2%2Band%2B3%2Byrs%2Bafter%2BVIX%2B10%2Bhighest%2Band%2Blowest%2Bavg%2Bannual%2Breadings.png" width="640" /></a></div>
<div align="center" style="text-align: center;">
<i>[source(s): CBOE, Yahoo, VIX and More]<o:p></o:p></i></div>
<div align="center" style="text-align: center;">
<i><br /></i></div>
<div class="MsoNormal">
I offer up these
graphics because I maintain that there are many skeptics regarding not only the
persistent clustering of low VIX readings, but also related to the lack of
robust data showing the effect of <a href="http://vixandmore.blogspot.com/search/label/mean%20reversion">mean
reversion</a> during low volatility regimes.
As I have noted previously, mean reversion is much more predictable and
tradeable following a VIX spike than after a significant decline in the VIX.<br />
<br />
<o:p></o:p></div>
<div align="center" style="text-align: center;">
<i>Follow me on Twitter at: <a href="https://twitter.com/VIXandMore">@VIXandMore</a><o:p></o:p></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Related posts:</div>
<div class="MsoNormal">
</div>
<ul>
<li><a href="http://vixandmore.blogspot.com/2017/02/putting-low-stock-volatility-to-good.html">Putting
Low Stock Volatility to Good Use (Guest Columnist at Barron’s)</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/12/my-low-volatility-prediction-for-2016.html">My
Low Volatility Prediction for 2016: Both Idiocy and Genius</a></li>
<li><a href="http://vixandmore.blogspot.com/2014/01/was-vix-too-low-in-2013-no.html">Was
the VIX Too Low in 2013? No…</a> </li>
<li><a href="http://vixandmore.blogspot.com/2012/03/vix-of-15-meet-new-reality.html">A
VIX of 15!?! Meet the New Reality</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/01/s-500-index-20-day-historical.html">S&P
500 Index 20-Day Historical Volatility Hits 39-Year Low</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/10/anchoring-and-vix-of-20.html">Anchoring
and a VIX of 20</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/05/how-low-can-vix-go.html">How Low
Can the VIX Go?</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/05/where-will-vix-bottom.html">Where
Will the VIX Bottom?</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/04/vix-high-or-low-it-depends.html">VIX
High or Low? It Depends…</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/11/vix-median-reversion-and-five-year.html">VIX
Median Reversion and Five-Year Moving Averages</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/08/a-vix-risk-reversal.html" style="font-family: "Times New Roman", serif; font-size: 12pt;">A VIX
Risk Reversal</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/07/why-vix-puts-get-cheaper-in-more.html" style="font-family: "Times New Roman", serif; font-size: 12pt;">Why
VIX Puts Get Cheaper in More Distant Months</a></li>
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<b><i>Disclosure(s): </i></b><i>the CBOE is an advertiser on VIX and More<o:p></o:p></i></div>
Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-29741860008990413672017-02-18T14:18:00.001-08:002017-02-18T14:19:37.343-08:00Putting Low Stock Volatility to Good Use (Guest Columnist at Barron’s)<div class="MsoNormal">
With spring
training just getting underway in Florida and Arizona, I think it is
appropriate that I once again have an opportunity to pinch hit for <a href="http://topics.barrons.com/person/S/steven-m-sears/6043">Steve Sears</a>
in his <a href="http://www.barrons.com/search?KEYWORDS=The+Striking+Price&mod=DNH_S">The
Striking Price</a><span class="MsoHyperlink"> </span>column for <a href="http://www.barrons.com/">Barron’s</a>.
Today’s column is called <a href="http://www.barrons.com/articles/putting-low-stock-volatility-to-good-use-1487399145">Putting
Low Stock Volatility to Good Use</a> (my title suggestions always seem to end
up on the cutting floor) and builds upon some of the ideas I presented three
years ago in <a href="http://online.barrons.com/news/articles/SB50001424053111904554304579577934289682884">Low
Volatility: How to Profit from a Quiet
VIX</a>.<o:p></o:p></div>
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If my memory is
correct, this is the twentieth time I have been a guest columnist at Barron’s
in this fashion and in keeping with tradition, I always try to make the column topical,
particularly when there are some aspects of volatility that have investors more
perplexed than usual. Lately, it has
been the persistent low VIX readings (including the first <a href="http://vixandmore.blogspot.com/search/label/sub-10">sub-10 VIX</a> print
in a decade) in conjunction with a new administration and extremely high policy
uncertainty that has been difficult for investors to digest. While I too have dedicated a fair amount of
effort to square low volatility with high policy uncertainty, my research
related to volatility has made it easier to stick with the trend instead of
trying to anticipate a market turn.<o:p></o:p></div>
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Specifically, in
the Barron’s article I note:<o:p></o:p></div>
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<i>“Statistically, it turns out that the
vaunted mean-reverting aspect of volatility is much more likely to kick in with
a high VIX than a low VIX. Similarly, low volatility tends to cluster and
persist for extended periods, defying skeptics. Specifically, when the VIX dips
below 12 for several months, the historical record shows it can be expected to
continue with similar readings for two years or more.”<o:p></o:p></i></div>
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As Barron’s is
not necessarily the best place to try to shoehorn original research into a
short column, I thought I could use this space to expand upon some of the
points I made. Specifically related to
the <a href="http://vixandmore.blogspot.com/search/label/volatility%20clusters">clustering
of low volatility</a>, the graphic below shows that when the VIX closes below
12, it tends to persist in these low readings, clustering for several years,
before remaining above 12 for even longer periods during high volatility
regimes. <br />
<br />
<o:p></o:p></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-BaSHnRDTb8s/WKjIDBg8ItI/AAAAAAAAJ88/fkcKIPO7_N4aMt2O3mGvdbCqaJKrgrJ6wCLcB/s1600/VIX%2Bcloses%2Bbelow%2B12%2Bby%2Bmonth%2Bfr%2B1990%2B021817.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="288" src="https://4.bp.blogspot.com/-BaSHnRDTb8s/WKjIDBg8ItI/AAAAAAAAJ88/fkcKIPO7_N4aMt2O3mGvdbCqaJKrgrJ6wCLcB/s640/VIX%2Bcloses%2Bbelow%2B12%2Bby%2Bmonth%2Bfr%2B1990%2B021817.png" width="640" /></a></div>
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<i>[source(s): CBOE, VIX and More]<o:p></o:p></i></div>
<div align="center" style="text-align: center;">
<i><br /></i></div>
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A corollary to
the above is that while investors often focus a good deal of their VIX analysis
on <a href="http://vixandmore.blogspot.com/search/label/mean%20reversion">mean reversion</a>,
it is important to note that mean reversion is much more predictable and
tradeable following a VIX spike than after a significant decline in the VIX.<o:p></o:p></div>
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There are some
other interesting statistics and ideas in the Barron’s column that I will
address in other posts shortly, not the least of which addresses the
performance of the SPX in the years following extreme high and extreme low VIX
readings. Stay tuned.<o:p></o:p></div>
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Finally, since I
enjoy being a pinch hitter so much, I thought I might highlight one pinch
hitter for every new Barron’s column I write.
This time around I’d like to put the spotlight on Rusty Staub, who just
happened to be at the zenith of his pinch-hitting duties when I moved to New
York. In the twilight of his career, the
charismatic Rusty tied a National League record in 1983 with eight consecutive
pinch hits and also tied the Major League record with 25 RBI from those (24)
pinch hits. Rusty finished his career
with exactly 100 pinch hits and is currently 19<sup>th</sup> on the all-time
pinch hit list. I realize I have a long
way to go to get to Rusty’s rarefied air, but 100 pinch hits is something to
shoot for.<o:p></o:p></div>
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<br />
Related posts:</div>
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<ul>
<li><a href="http://vixandmore.blogspot.com/2016/12/my-low-volatility-prediction-for-2016.html">My
Low Volatility Prediction for 2016: Both Idiocy and Genius</a></li>
<li><a href="http://vixandmore.blogspot.com/2014/01/was-vix-too-low-in-2013-no.html">Was
the VIX Too Low in 2013? No…</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/03/vix-of-15-meet-new-reality.html">A
VIX of 15!?! Meet the New Reality</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/01/s-500-index-20-day-historical.html">S&P
500 Index 20-Day Historical Volatility Hits 39-Year Low</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/10/anchoring-and-vix-of-20.html">Anchoring
and a VIX of 20</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/05/how-low-can-vix-go.html">How Low
Can the VIX Go?</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/05/where-will-vix-bottom.html">Where
Will the VIX Bottom?</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/04/vix-high-or-low-it-depends.html">VIX
High or Low? It Depends…</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/11/vix-median-reversion-and-five-year.html">VIX
Median Reversion and Five-Year Moving Averages</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/08/a-vix-risk-reversal.html">A VIX
Risk Reversal</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/07/why-vix-puts-get-cheaper-in-more.html">Why
VIX Puts Get Cheaper in More Distant Months</a></li>
</ul>
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A full list of my (20) Barron’s contributions:<br />
<ul>
<li><a href="http://www.barrons.com/articles/putting-low-stock-volatility-to-good-use-1487399145">Putting
Low Stock Volatility to Good Use</a> (February 18, 2017)</li>
<li><a href="http://www.barrons.com/articles/how-to-play-a-volatility-spike-1478322727">How
to Play a Volatility Spike</a> (November 5, 2016)</li>
<li><a href="http://www.barrons.com/articles/playing-volatile-oil-prices-for-profit-1457759933">Playing
Volatile Oil Prices</a> (March 12, 2016)</li>
<li><a href="http://www.barrons.com/articles/the-case-against-high-stock-market-volatility-in-2016-1451704416">The
Case Against High Stock-Market Volatility in 2016</a> (January 2, 2016)</li>
<li><a href="http://online.barrons.com/articles/seizing-opportunity-from-stock-market-volatility-1436596043">Seizing
Opportunity from Stock Market Volatility</a> (July 11, 2015)</li>
<li><a href="http://online.barrons.com/articles/how-to-ride-an-aging-bull-1417239597">How
to Ride an Aging Bull</a> (November 29, 2014)</li>
<li><a href="http://online.barrons.com/news/articles/SB50001424053111904248904580005080448123698">Investors'
Best Options in a ‘No Fear’ Market</a> (July 2, 2014)</li>
<li><a href="http://online.barrons.com/news/articles/SB50001424053111904554304579577934289682884">Low
Volatility: How to Profit from a Quiet
VIX</a> (May 22, 2014)</li>
<li><a href="http://online.barrons.com/article/SB50001424053111903536004579467372137029220.html">Emerging
Market Stocks: Have They Hit Bottom?</a>
(March 28, 2014)</li>
<li><a href="http://online.barrons.com/article/SB50001424052748704093404578609670858329206.html?mod=BOL_da_spd">How
to Spot Risk Early</a> (July 16, 2013)</li>
<li><a href="http://online.barrons.com/article/SB50001424052748703318404578430882101527030.html?mod=BOL_hps_highlight_mid">How
to Insure Your Stock Portfolio</a> (April 18, 2013)</li>
<li><a href="http://online.barrons.com/article/SB50001424052748703792204578217484255589840.html?mod=BOL_hps_highlight_bottom">The
Case for Options Trading</a> (January 2, 2013)</li>
<li><a href="http://online.barrons.com/article/SB50001424052748704526104578118984076144580.html">Calm
Down and Exploit Others’ Anxieties</a> (November 14, 2012)</li>
<li><a href="http://online.barrons.com/article/SB50001424053111904184504577518802209654274.html">How
to Trade Options Around Volatile Events</a> (July 10, 2012)</li>
<li><a href="http://online.barrons.com/article/SB50001424053111903935304577382010847832798.html?mod=BOL_hps_highlight_bottom">Be
Greedy While Others Are Fearful</a> (May 3, 2012)</li>
<li><a href="http://online.barrons.com/article/SB50001424052970204201404576077942647562616.html?mod=BOL_hps_dc">Ways
to Turn Volatility into an Asset Class</a> (January 12, 2011)</li>
<li><a href="http://online.barrons.com/article/SB50001424052970204743004575622694164710232.html">There’s
Opportunity in Uncertainty</a> (November 18, 2010)</li>
<li><a href="http://online.barrons.com/article/SB50001424052970204297404575493863568455090.html">Will
Market Volatility Return to Crisis Levels?</a> (September 15, 2010)</li>
<li><a href="http://online.barrons.com/article/SB127430948974994023.html">The Perils
of Predicting Volatility</a> (May 20, 2010)</li>
<li><a href="http://online.barrons.com/article/SB124648899704482887.html">Take a
Longer View on Volatility</a> (July 2, 2009)</li>
</ul>
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<b><i>Disclosure(s): </i></b><i>the CBOE is an advertiser on VIX and More<o:p></o:p></i></div>
Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.comtag:blogger.com,1999:blog-897456774486153841.post-70134578757141092152017-01-04T12:59:00.002-08:002017-01-05T16:15:18.110-08:00VIX ETPs Flash Some Green in 2016<div class="MsoNormal">
Last year I
shocked quite a few investors and media outlets with the publication of <a href="http://vixandmore.blogspot.com/2016/01/every-single-vix-etp-long-and-short.html">Every
Single VIX ETP (Long and Short) Lost Money in 2015</a>. My intent was not to tar and feather the <a href="http://vixandmore.blogspot.com/search/label/VIX%20ETN">VIX
exchange-traded products</a> landscape, but to highlight the fact that in an
environment characterized by sharp <a href="http://vixandmore.blogspot.com/search/label/VIX%20spikes">VIX spikes</a> and
other volatility extremes, the power of volatility compounding price decay can
overwhelm both long and inverse ETPs. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In sharp
contrast to across-the-board losses in 2015, the performance of VIX ETPs in
2016 was much more balanced and in line with historical norms. While there were some sharp VIX spikes, the
combination <a href="http://vixandmore.blogspot.com/2016/12/my-low-volatility-prediction-for-2016.html">moderate
volatility</a>, above-average <a href="http://vixandmore.blogspot.com/search/label/contango">contango</a><span class="MsoHyperlink"> </span>and
persistent <a href="http://vixandmore.blogspot.com/search/label/mean%20reversion">mean
reversion</a> translated into a sharp down year for the long VIX ETPs and a
strong up year for the inverse VIX ETPs.
The more complex multi-leg, long-short and dynamic VIX strategy ETPs
were closest to breaking even for the year, with half of these posting modest gains
and half posting small losses.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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In the graphic
below, I have plotted the performance of all twenty VIX-based ETPs with respect
to leverage and maturity, using leverage on the y-axis and maturity on the x-axis. This group includes five VIX
strategy ETPs that have no easily discernible point on the leverage-maturity
grid. Depending on how finely you wish
to split hairs, these twenty ETPs account for anywhere from
fourteen to eighteen unique ways to trade volatility long and short, across
various maturities and according to a wide variety of strategic
approaches. </div>
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<a href="https://4.bp.blogspot.com/-bPf8OpD00ik/WG7ggxoWtcI/AAAAAAAAJ7Y/frbEP0YX7H4eQfV8mJ2K7PsG2DYv4qfrwCLcB/s1600/VIX%2BETP%2BPerformance%2B2016.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="478" src="https://4.bp.blogspot.com/-bPf8OpD00ik/WG7ggxoWtcI/AAAAAAAAJ7Y/frbEP0YX7H4eQfV8mJ2K7PsG2DYv4qfrwCLcB/s640/VIX%2BETP%2BPerformance%2B2016.png" width="640" /></a></div>
<i><br />[source(s): VIX and More]<o:p></o:p></i></div>
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On the plus
side, while both <a href="http://vixandmore.blogspot.com/search/label/XIV">XIV</a>
and <a href="http://vixandmore.blogspot.com/search/label/SVXY">SVXY</a> were up
over 80% during calendar 2016, this performance falls short of the 2012 and
2013 numbers, where each ETP gained more than 100% in both years. Similarly, while losses of over 93% for <a href="http://vixandmore.blogspot.com/search/label/UVXY">UVXY</a> and <a href="http://vixandmore.blogspot.com/search/label/TVIX">TVIX</a> must sound
like a worst-case scenario for these two products, losses were over 97% in 2012
and just slightly better – at -92% – in 2013. In terms of consistent winners, while their numbers have been more modest, the most consistent gainers in the VIX ETP space have been <a href="http://vixandmore.blogspot.com/search/label/ZIV">ZIV</a>, <a href="http://vixandmore.blogspot.com/search/label/TRSK">TRSK</a> and <a href="http://vixandmore.blogspot.com/search/label/SPXH">SPXH</a>.<o:p></o:p><br />
<br />
Two new VIX ETPs entered the fray in 2016: <a href="http://vixandmore.blogspot.com/search/label/VMIN">VMIN</a> and <a href="http://vixandmore.blogspot.com/search/label/VMAX">VMAX</a>. While these products have not yet attracted the interest of investors that I believe is warranted (<a href="http://vixandmore.blogspot.com/2016/05/vmax-and-vmin-poised-to-be-most.html">VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years</a>), there is still time for investors to discover these products. For the record, VMIN was launched on May 2, 2016 and outperformed both XIV and SVXY from the launch date until the end of the year, racking up an impressive 80.5% return in just eights months of trading. Going forward, I would expect VMIN to regularly be the top performer in any period in which the inverse ETPs post positive returns.</div>
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For those who
may be wondering, the VIX index was down 22.9% for the year, while the front
month <a href="http://vixandmore.blogspot.com/search/label/VIX%20futures">VIX
futures</a> product ended the year with a loss of 18.3%.<o:p></o:p></div>
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<div class="MsoNormal">
As is typically the case, contango was a
significant performance driver during the course of the year. Contango affecting the front month and second
month VIX futures averaged a relatively robust 8.3% per month during the year
(the highest since 2012), while contango between the fourth month and seventh
month was slightly above average at 1.8% per month.<o:p></o:p></div>
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During the
course of the year, five VIX ETPs were shuttered.
These include <a href="http://vixandmore.blogspot.com/search/label/VXUP">VXUP</a>
and <a href="http://vixandmore.blogspot.com/search/label/VXDN">VXDN</a>, <a href="http://vixandmore.blogspot.com/search/label/XVIX">XVIX</a>, <a href="http://vixandmore.blogspot.com/search/label/CVOL">CVOL</a> and <a href="http://vixandmore.blogspot.com/search/label/VQTS">VQTS</a>. The biggest factors in the demise of these
products was a lack of volume and assets.
In the case of VXUP and VXDN, the product complexity and cumbersome
array of distributions also helped to quell investor enthusiasm. Last but not least, I elected to drop <a href="http://www.ipathetn.com/US/16/en/details.app?instrumentId=68522">XXV</a>
and <a href="http://www.ipathetn.com/US/16/en/details.app?instrumentId=259117">IVOP</a>
from this list as these zombie ETPs both have less than 1% exposure to their
underlying volatility index due to the lack of daily rebalancing. As a result, these have become almost
entirely all-cash vehicles, with a dash of volatility. (For those who are curious about these
instruments, follow the links above, click on the link to the prospectus and do
a keyword search for “participation.”)<o:p></o:p><br />
<br /></div>
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As an aside, for those who
may be wondering, the flurry of recent posts is not an anomaly. There is a lot to be said about the VIX, volatility,
ETPs, market sentiment and many of my other areas of interest. With the
the-year anniversary of the VIX and More blog just three days away, this seems
like a good time to dive head first back into the fray.<o:p></o:p></div>
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Related posts:</div>
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</div>
<ul>
<li><a href="http://vixandmore.blogspot.com/2016/12/the-year-in-vix-and-volatility-2016.html">The
Year in VIX and Volatility (2016)</a></li>
<li><a href="http://vixandmore.blogspot.com/2017/01/the-2016-vix-futures-term-structure.html">The
2016 VIX Futures Term Structure: Extraordinarily Average</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/12/my-low-volatility-prediction-for-2016.html">My
Low Volatility Prediction for 2016: Both Idiocy and Genius</a></li>
<li><a href="http://vixandmore.blogspot.com/2016/01/every-single-vix-etp-long-and-short.html">Every
Single VIX ETP (Long and Short) Lost Money in 2015</a></li>
<li><a href="http://vixandmore.blogspot.com/2014/01/performance-of-vix-etps-in-2013.html">Performance
of VIX ETPs in 2013</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/10/performance-of-vix-etps-during-recent.html">Performance
of VIX ETPs During the Recent Debt Ceiling Crisis</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/01/vix-etp-performance-in-2012.html">VIX
ETP Performance in 2012</a></li>
<li><a href="http://vixandmore.blogspot.com/2013/08/expanded-performance-of-volatility.html">Expanded
Performance of Volatility-Hedged and Related ETPs</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/06/performance-of-volatility-hedged-etps.html">Performance
of Volatility-Hedged ETPs</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/04/performance-of-vix-etp-hedges-in.html">Performance
of VIX ETP Hedges in Current Selloff</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/01/comparing-splv-and-vqt.html">Comparing
SPLV and VQT</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/01/ziv-undeservedly-neglected.html">ZIV
Undeservedly Neglected</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/02/will-tvix-go-to-zero.html">Will
TVIX Go To Zero?</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/02/four-key-drivers-of-price-of-tvix.html">Four
Key Drivers of the Price of TVIX</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/02/credit-suisse-suspends-creation-units.html">Credit
Suisse Suspends Creation Units in TVIX: What It Means</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/03/tvix-creation-units-return-what-it.html">TVIX
Creation Units Return: What It Means for Investors</a></li>
<li><a href="http://vixandmore.blogspot.com/2012/02/all-about-uvxy.html">All About
UVXY</a></li>
<li><a href="http://vixandmore.blogspot.com/2010/10/case-for-vqt.html">The Case for
VQT</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/11/ten-months-have-passed-since-last-time.html">Slicing
and Dicing all 31 Flavors of the VIX ETPs</a></li>
<li><a href="http://vixandmore.blogspot.com/2011/01/charting-assets-of-volatility-based.html">Charting
the Assets of the Volatility-Based ETPs</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/10/why-vxx-is-not-good-short-term-or-long.html">Why
VXX Is Not a Good Short-Term or Long-Term Play</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/05/vxx-calculations-vix-futures-and-time.html">VXX
Calculations, VIX Futures and Time Decay</a></li>
<li><a href="http://vixandmore.blogspot.com/2009/01/first-day-of-trading-in-vxx-and-vxz.html">First
Day of Trading in VXX and VXZ a Success</a></li>
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For those who
may be interested, you can always follow me on Twitter at <a href="https://twitter.com/VIXandMore">@VIXandMore</a><br />
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<div align="center" style="text-align: center;">
<b><i>Disclosure(s): </i></b><i>net short VXX, VMAX, UVXY and TVIX; net long
XIV, SVXY and ZIV at time of writing<o:p></o:p></i></div>
Bill Lubyhttp://www.blogger.com/profile/01241003017364820134noreply@blogger.com