Who Is Trading TVIX?

As action in the TVIX heats up again today (up 15% on 21 million shares traded), I gave some thought to who might be trading what I called in this space over a year ago “day trading rocket fuel.”

Fortunately, we have the optionsXpress Trading Patterns feature to help answer this question.

In the graphic below, it appears that TVIX is part of the arsenal of those who favor the high volatility products that are ideally suited to short-term trades. These include the 3x leveraged ETPs (TNA and TZA), the 2x leveraged ETP for silver (AGQ) and a handful of futures products based on the S&P 500, Dow Jones Industrial Average and crude oil. Two high flying stocks are also on the list, Renren (RENN) and BroadVision (BVSN) – the latter of which just happens to be the first or second internet stock I ever purchased, some 16 years ago.

It turns out I cannot type fast enough to keep up with market events. As I was typing this, there appeared to be another short squeeze in TVIX (see VXX Options Calm After Second Highest Volume Day Ever for details on the last one), though the markets seem to be settling back down once again.

Finally, a quick reminder that today is the last trading day for VIX February options. VIX February futures can be traded through tomorrow’s pre-market session, which runs from 8:00 – 9:15 a.m. ET. Both products settle with a special opening quotation (VIX SOQ) at the beginning of tomorrow’s regular trading session.

Related posts:

• Volatility Becomes Unhinged on Friday
• VXX Options Calm After Second Highest Volume Day Ever
• TVIX Finally Getting Its Due As Day Trading Rocket Fuel
• Who Trades the VIX and VXX?
• Optionsxpress Trading Patterns and the VIX

[source(s): optionsXpress.com]

Disclosure(s): short VXX and TVIX at time of writing

Who Trades the VIX and VXX?

Several times in the past, I have had some fun the Trading Patterns feature at optionsXpress, including a February 2008 post, optionsXpress Trading Patterns and the VIX, which examined the securities that optionsXpress customers who traded the VIX were also trading.

Given all that has happened in the past 16 months, I thought it might be interesting to see what the current crop of VIX traders are trading – and also to contrast this with traders of VXX, the VIX ETN.

First, the VIX trader snapshot from February 28, 2008 shows leveraged short positions in real estate, technology and oil.

I have expanded today’s snapshot of the VIX trader to include a larger list of securities. Clearly, some themes remain, such as the bias for leveraged short positions in real estate and finance, as well as interest in some of the most volatile momentum stock plays.

Finally, looking at the VXX trader, both ETFs in general and the leveraged ETF plays in particular are even more important parts of the trading approach.

In terms of conclusions, I am cognizant that the optionsXpress customer base is a retail-oriented subset of the broader trading crowd and not necessarily representative of the bulk of the volume of VIX and VXX trades. From the graphics above, however, it is difficult to make the case that traders are using the VIX and VXX for hedging. Based on available data, traders who trade the VIX and VXX are typically trading the most volatile leveraged securities available. At the very least, the connection between the VIX and leveraged ETFs appears to be very strong among those traders who prefer to focus on the most volatile nuclear-tipped trading vehicles.

[source: optionsXpress]

Disclosure: Long VXX and neutral position in VIX via options at time of writing

People Trading BIDU Also Traded…

Back in September 2007, I started periodically posting snapshots from the optionsXpress Trading Patterns feature and chose to highlight the highly speculative Chinese internet search firm, Baidu (BIDU), then trading at 299, as my guinea pig. Over the course of seven months, I twice updated what traders who traded BIDU were also trading at optionsXpress when BIDU was at 380 on 10/30/2007 and when it was at 350 on 4/22/2008.

I just captured the most recent Trading Patterns update, which shows traders who are trading BIDU (currently at 185) are still active in the most volatile names in agriculture, financials, shipping, solar, and casinos. The stocks on the top ten list: Potash (POT), Mosaic (MOS), Citigroup (C), JPMorgan Chase (JPM), Bank of America (BAC), DryShips (DRYS), First Solar (FSLR), and Las Vegas Sands (LVS). Also on the list are two ETFs, QQQQ and SPY. Either optionsXpress customers have been cleaning up on the short side or they are a little early to the bull party.

[source: optionsXpress]

BIDU Speculators

When I first looked at the optionsXpress trading patterns (“People Trading ___ Also Traded ___”) function back in September, I certainly did not expect that it would become a recurring feature on the blog.

I did, however, have the good fortune of selecting Baidu (BIDU) as my example stock and came up with a good list of speculative companies – all of which were taken to the woodshed at the end of October and sold aggressively over the past six months or so.

Here we are in April and the market has put in a provisional bottom and lo and behold, BIDU is up over 70% in the past month. So, I asked that same rhetorical question once again and optionsXpress was kind enough to oblige me with a list of companies that BIDU speculators have been pushing up over the past month. [All optionsXpress customers can do the same for any security by going to the Quotes tab, clicking on Quote Detail, then clicking on the People Trading… link under the chart on the right.]

There are no real surprises on my end this time around, save perhaps the inclusion of two financial plays, MER and XLF, though it is interesting to see how the list has changed since the last time I did this, which just happened to be on October 30, 2007, at the time the markets were peaking.

optionsXpress Trading Patterns and the VIX

One of the trading tools that satisfies my inner investment voyeur is the Trading Patterns feature at optionsXpress. If the “Trading Patterns” name doesn’t ring a bell, you might also know this feature as “People Trading ___ Also Traded…” in the spirit of Amazon’s recommendation technology and predecessor technology that dates back to internet pioneer Firefly Network Inc.

In the past, I have used the Trading Patterns data to see which companies were being most actively traded by those who are seeking high risk speculative momentum plays. I somewhat arbitrarily made BIDU the poster child for these momentum chasers and have twice looked at what those who were playing with BIDU were also trading.

With all the discussion around potential substitutes for the VIX at least as a hedging tool, I thought it might be interesting to get a broader picture of those who trade VIX options. Thanks to Trading Patterns, I have captured just such a snapshot below. Not surprisingly, VIX traders are aggressive risk takers. In aggregate, they appear to be hoarding gold (GLD) and going short with the double inverse ETFs for real estate (SRS) and the NASDAQ-100 index (QID). It’s just a guess about the direction of some holdings, but the other positions appear to fall squarely in the short finance and technology camp: SPY, WB, AAPL, YHOO, and NVDA. The one finding that I see as somewhat surprising is the presence of the ProShares Ultrashort Oil & Gas ETF (DUG). Given the list of trading vehicles, I am concluding that the VIX players see oil and gas as overbought instead of a safe haven like gold. In any event, it is clear that the pessimism of VIX traders continues to be grounded in an expansion of the real estate and financial woes, the expectation that this will drag technology down with it, and the opinion that gold is the most sensible long position at the moment.

Update on ‘People Trading BIDU Also Traded…’

Apropos of my earlier comments on China and the FXI, I feel compelled to made two additional observations:

ProShares just announced a new ETF that targets double the inverse of the FXI. The UltraShort FTSE/Xinhua China 25 (ticker FXP) is slated to launch sometime in November – and should provide a wild ride for anyone tall enough and brave enough to get on this roller coaster.

Given that BIDU is trading up some 14 points as I type this, I have updated the optionsXpress Trading Patterns feature (“People Trading BIDU Also Traded…”) which I first posted about a month ago. Many of the names are the same; this also has the appearance of a who’s who of speculative momentum trading.

Finally, I am officially neutral going into tomorrow’s FOMC announcement, but whichever side you are playing, be sure to fasten your seatbelt and cut your losses before they run away from you.

BIDU: Hogs (Eventually) Get Slaughtered

As I write this, BIDU is trading at about 301, meaning that if you got in near the August 16 low, you may be sitting on a 140 point profit.

I was indeed fortunate enough to grab some BIDU on August 16^th, though nowhere close to the day’s low of 161. Over the course of the past few weeks I have been taking profits, with less than 10% of my initial position remaining after selling some earlier this morning.

As I was selling some shares, it occurred to me that it might be time to update my watch list of “Overripe High Fliers.” This is a list of ten momentum stocks that I keep a close eye on and expect to provide some clues about speculative activity. These stocks should be strong when the market is rallying and move sharply down when the market turns down. The list currently consists of AAPL, BCSI, BIDU, CROX, DRYS, FSLR, GRMN, LVS, RIMM and VMW.

In keeping with Amazon’s “people who bought X also…” approach, optionsXpress has a tool that tells you what people who traded BIDU were also trading. The results, in the graphic below, could easily be an updated list of those “Overripe High Fliers.” Consider that when BIDU finally makes a sharp turn south (and I expect a -20 day soon), the rest of the stocks on this list will probably be dumped with the same bath water. Contrarians, aim your guns at these targets.

…and don’t count on the nearly vertical rise in BIDU to continue much longer. As a general rule, the steeper the rise, the more spectacular the fall back to earth.