UVXY Dominates VIX ETPs By Dollar-Weighted Volume

At various times in the 13-year history of VIX ETPs there have been as many of 30+ different versions of these VIX-based products on the market.  Initially, it was the +1x VXX that dominated the space, later supplanted by the +2x TVIX and then the -1x XIV as the top dog.  All three of these products have run into various issues (see VIX ETPs – What Can Go Wrong?), with XIV dead, TVIX relegated to irrelevance and trading by appointment on the pink sheets as TVIXF and VXX currently wounded by regulatory issues (Barclays Suspends Creation Units for VXX).

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 UVXY 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 SVXY 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 VIXY 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.

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, VIXM and VXZ, both have a weighted-average maturity of five months.

 [source(s):  Yahoo, VIX and More]

Further Reading:
UVIX and SVIX Join the VIX-Based ETP Landscape
VIX ETPs – What Can Go Wrong?
Successful Launch for SVIX and UVIX
VIX ETPs Flash Some Green in 2016
Every Single VIX ETP (Long and Short) Lost Money in 2015
Performance of VIX ETPs During the Recent Debt Ceiling Crisis
Expanded Performance of Volatility-Hedged and Related ETPs
Performance of Volatility-Hedged ETPs
Performance of VIX ETP Hedges in Current Selloff
Slicing and Dicing all 31 Flavors of the VIX ETPs
Charting the Assets of the Volatility-Based ETPs

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): net short VXX, UVIX and UVXY, net long SVIX at time of writing

 

VIX ETPs – What Can Go Wrong?

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.

On the other hand, the VIX ETPs 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.  How much risk?  Quite a lot.  Consider that on a split-adjusted basis, the +2x long TVIX launched at 2.66 billion (not a typo!) and trades anywhere from less than a dollar (the TVIX.IV indicative value) to 2.45 TVIXF (on the pink sheets), depending upon how you wish to measure the magnitude of the bloodbath.  On the other side of the coin, the -1x short XIV fell 93% on one day back in the February 2018 volatility spike now known as Volmageddon that resulted in an acceleration event (triggered when the price of XIV fell by more than 80% on a single day) and the closing of XIV.

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.

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 contango and negative roll yield.  Way back in May 2009, I summarized some of my thinking in the likes of VXX Calculations, VIX Futures and Time Decay and elaborated on some of those themes in October 2009 in Why VXX Is Not a Good Short-Term or Long-Term Play.  I also addressed the subject of how reverse splits are the only thing keeping some of these products from falling to zero in Will TVIX Go to Zero? in February 2012.  In that post, I highlighted this gem from the TVIX prospectus:

“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.”

One of my better summaries of the factors putting downward pressure on the price of TVIX came in Four Key Drivers of the Price of TVIX in 2012.  Here is the meat of that post:

1.  Volatility – this seems obvious, but in the short-term, the movements of the front month and second month VIX futures 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.

2.  Leverage – 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.

3.  Contango – thanks to the emergence of VIX ETPs as the cornerstone of volatility as an asset class, issues related to the VIX futures term structure 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.

4.  Volatility compounding – 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.

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 VXX 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 this investor bulletin.

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:

• VXX
• VIXY, UVXY and SVXY
• UVIX and SVIX

I am often asked if these products were designed to go to zero.  No, they were not designed to go to zero.  The original intent was that these products would be short-term hedging or speculative instruments for institutions.  They do, however, have structural flaws that begin to appear as soon as these products are held for more than one day.  Over time, these structural flaws compound and will dominate the price action.

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.

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.

[source(s):  Yahoo, VIX and More]

Further Reading:
VXX Upside vs. Downside Risk with No New Creation Units
Barclays Suspends Creation Units for VXX
Four Key Drivers of the Price of TVIX
Will TVIX Go to Zero?
TVIX Creation Units Return; What It Means for Investors
Credit Suisse Suspends Creation Units in TVIX: What it Means
Why VXX Is Not a Good Short-Term or Long-Term Play
VXX Calculations, VIX Futures and Time Decay
Using Options to Control Risk in Leveraged ETFs

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): net short VXX and UVXY, long SVIX at time of writing

UVIX and SVIX Join the VIX-Based ETP Landscape

Tomorrow will see first launch in the VIX ETP space since…well I’m not sure exactly, but I’m guessing the May 2016 launch of the now defunct VMIN and VMAX products.  Back in 2016, I tracked 27 different VIX ETPs 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 the “Volmageddon” demise of XIV and the subsequent downward recalibration of leverage in issues such as UVXY and SVXY. 

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.  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.

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 Why We Need the LONGVOL & SHORTVOL Indexes.

The two new products are:

UVIX (Volatility Shares 2x Long VIX Futures ETF) – a +2x product that is similar to the TVIX/TVIXF ETN as well as the UVXY ETF prior to its decrease in leverage from +2x to +1.5x on February 28, 2018 (profile, prospectus, more information via Vance Harwood)

SVIX (Volatility Shares -1x Short VIX Futures ETF) – a -1x product that is similar to the old XIV ETN as well as the SVXY ETF prior to its decrease in leverage from -1x to -0.5x on February 28, 2018 (profile, prospectus, more information via Vance Harwood)

With VXX currently in turmoil due to the ongoing suspension of its creation units, 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.

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.]

Now all we need is a product to fill the space left by the departure of ZIV (-1x, with a 5-month average maturity) and I would consider all the important VIX ETP white spaces to be restored.

[source(s):  VIX and More]

Further Reading:
Barclays Suspends Creation Units for VXX
Updating the Current VIX ETP Landscape
VIX ETPs Flash Some Green in 2016
Every Single VIX ETP (Long and Short) Lost Money in 2015
Performance of VIX ETPs During the Recent Debt Ceiling Crisis
Expanded Performance of Volatility-Hedged and Related ETPs
Performance of Volatility-Hedged ETPs
Performance of VIX ETP Hedges in Current Selloff
Slicing and Dicing all 31 Flavors of the VIX ETPs
Charting the Assets of the Volatility-Based ETPs
Four Key Drivers of the Price of TVIX
Will TVIX Go to Zero?
Who Is Trading TVIX?
All About UVXY

For those who may be interested, you can always follow me on Twitter at @VIXandMore

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

 

Barclays Suspends Creation Units for VXX

 Earlier today, Barclays announced 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 (VXX); and the iPath Pure Beta Crude Oil ETN (OIL).  VXX is the premier VIX-based ETP and has been the most popular subject on this blog for the past 13 years.  It was the first VIX ETP to launch back on January 30, 2009 (along with VXZ) 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.

While the news from Barclays was a surprise, it was not unprecedented.  Credit Suisse suspended creation units in TVIX (a +2x version of VXX) twice: once in dramatic fashion in February 2012; and again in July 2020, when the product was delisted and moved to the pink sheets to trade under the TVIXF ticker.

The first time around, on February 21, 2012, there was not a VIX spike, per se, that triggered the event.  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.  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.

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.  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.

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 intraday indicative value (IV).  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.  When TVIX creation units were restored, TVIX fell 60% in three days and soon was trading within 1% of indicative value.  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.  Initially, there was almost no premium in TVIXF to TVIX.IV, but the Reddit r/wallstreetbets 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.  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.

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 (DGAZF), which spiked from 400 to 24,000 in a week in August 2020.  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.  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.  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.

There are many other examples of ETPs that have had their creation units suspended, with resultant price anomalies.  Deutsche Bank did it with a variety of commodities ETNs in 2011 and 2012.  PowerShares also suspended creation units in the popular PowerShares DB Oil Fund (DBO) in 2015, with yet another large price spike.

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.

As for VXX, the reasons for the halt in creation units are not exactly clear.  Barclays says in their press release:

“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.”

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.  Without knowing the underlying cause, it is difficult to predict when new creation units will be restored.  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.

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.  Investors, therefore, need to understand the risks associated with long positions going forward and not find themselves in an air pocket like TVIX longs did back in March 2012.  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.  Alternatively, VIXY is an ETP issued by ProShares that holds a basket of VIX futures rather than an unsecured bank note with a promise to return the same performance as that basket of VIX futures.

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 Ukraine and Russia, there is already the potential for huge moves in the underlying.

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.  I have also provided links to a number of tangential issues related to VIX ETPs and pricing anomalies.

In the graphic below, I show the divergence between VXX and VXX.IV during today’s regular trading hours (Pacific Time).  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.

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.  Until then, keep a close eye on the varying premium of VXX and VXX.IV, while evaluating alternatives such as VIXY and UVXY.

[source(s):  Yahoo, TD Ameritrade, VIX and More]

Further Reading:

Attempt at TVIX Short Squeeze Fizzling Out
The Resurrection of TVIX
TVIX Premium to Indicative Value Creeping Back Up
TVIX Creation Units Return; What It Means for Investors
Is TVIX Now Just a More Docile UVXY?
Recent TVIX Volume and VIX Futures Volume
The Story of VIX ETPs Relative to their Intraday Indicative Values
The Ups and Downs of the New Premium in TVIX
Credit Suisse Suspends Creation Units in TVIX: What it Means
Four Key Drivers of the Price of TVIX
Will TVIX Go to Zero?
TVIX Topples VXX as Highest Volume VIX ETP
Who Is Trading TVIX?
Volatility Becomes Unhinged on Friday
TVIX Finally Getting Its Due As Day Trading Rocket Fuel
TVIX Trades One Million Shares for First Time
All About UVXY

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): long VXX at time of writing

Updating the Current VIX-Based ETP Landscape

There is a lot going on in the markets, with several themes weighing on volatility or the potential for more volatility.  COVID-19 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.

In the time since I was a regular contributor in this space, a lot has happened in the volatility world and the VIX ETP 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).

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:

VXX (iPath Series B S&P 500 VIX Short-Term Futures ETN) – the pioneering +1 long volatility ETN that launched back on January 30, 2009 and has been the dominant product in the VIX ETP space throughout its lifetime

UVXY (ProShares Ultra VIX Short-Term Futures ETF) – the +1.5x ETF that spent most of its life as a +2x product and moved to +1.5x following the February 2018 Volmageddon event which resulted in the termination of XIV

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 TVIX, VIIX and ZIV now trade in the OTC market under the symbols TVIXF, VIIXF and ZIVZF.  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.

[source(s):  VIX and More]

Further Reading:
VIX ETPs Flash Some Green in 2016
Every Single VIX ETP (Long and Short) Lost Money in 2015
Performance of VIX ETPs During the Recent Debt Ceiling Crisis
Expanded Performance of Volatility-Hedged and Related ETPs
Performance of Volatility-Hedged ETPs
Performance of VIX ETP Hedges in Current Selloff
Slicing and Dicing all 31 Flavors of the VIX ETPs
Charting the Assets of the Volatility-Based ETPs

For those who may be interested, you can always follow me on Twitter at @VIXandMore

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

Ten Years Since the Biggest VIX Spike Ever

Ten years ago today, we witnessed that largest one-day VIX spike 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 China 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, FXI.

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 VIX ETPs available at that time) and bet on mean reversion cleaned up on that trade.

So, did this move in 2007 provide a hint as to what would follow in 2008?  As I see it, the timing was merely a coincidence.

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 “disaster imprinting” that followed such a severe shock to many investor psyches.

[source(s): VIX and More]

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.

For now, however, will just have to live with that eerie, unsettling feeling that often accompanies low volatility and wait for another bump in the night before we reassess the volatility landscape.

Further Reading:

• The Biggest VIX Spike Ever: A Retrospective
• Lessons from the Post-2/27 VIX Price Action
• Four Ways to Play VIX Options Following a Record 64% Move to 18.31
• How to Think About the Day After: Executive Summary
• Birthday Party?
• Last Two Days Are #5 and #6 One-Day VIX Spikes in History
• 2014 Had Third Highest Number of 20% VIX Spikes
• Today’s 34% VIX Spike and What to Expect Going Forward
• All-Time VIX Spike #11 (and a treasure trove of VIX spike data)
• VIX Sets Some New Records, Suggesting Volatility Near Peak
• Highest Intraday VIX Readings
• Short-Term and Long-Term Implications of the 30% VIX Spike
• VIX Spike of 35% in Four Days Is Short-Term Buy Signal
• Availability Bias and Disaster Imprinting
• VIX Data to Support Availability Bias and Disaster Imprinting Hypothesis
• The VIX:VXV Ratio, Availability Bias and Disaster Imprinting

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): none

VIX ETPs Flash Some Green in 2016

Last year I shocked quite a few investors and media outlets with the publication of Every Single VIX ETP (Long and Short) Lost Money in 2015.  My intent was not to tar and feather the VIX exchange-traded products landscape, but to highlight the fact that in an environment characterized by sharp VIX spikes and other volatility extremes, the power of volatility compounding price decay can overwhelm both long and inverse ETPs. 

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 moderate volatility, above-average contango and persistent mean reversion 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.

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. 

[source(s): VIX and More]

On the plus side, while both XIV and SVXY 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 UVXY and TVIX 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 ZIV, TRSK and SPXH.

Two new VIX ETPs entered the fray in 2016:  VMIN and VMAX.  While these products have not yet attracted the interest of investors that I believe is warranted (VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years), 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.

For those who may be wondering, the VIX index was down 22.9% for the year, while the front month VIX futures product ended the year with a loss of 18.3%.

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.

During the course of the year, five VIX ETPs were shuttered.  These include VXUP and VXDN, XVIX, CVOL and VQTS.  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 XXV and IVOP 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.”)

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.

Related posts:

• The Year in VIX and Volatility (2016)
• The 2016 VIX Futures Term Structure: Extraordinarily Average
• My Low Volatility Prediction for 2016: Both Idiocy and Genius
• Every Single VIX ETP (Long and Short) Lost Money in 2015
• Performance of VIX ETPs in 2013
• Performance of VIX ETPs During the Recent Debt Ceiling Crisis
• VIX ETP Performance in 2012
• Expanded Performance of Volatility-Hedged and Related ETPs
• Performance of Volatility-Hedged ETPs
• Performance of VIX ETP Hedges in Current Selloff
• Comparing SPLV and VQT
• ZIV Undeservedly Neglected
• Will TVIX Go To Zero?
• Four Key Drivers of the Price of TVIX
• Credit Suisse Suspends Creation Units in TVIX: What It Means
• TVIX Creation Units Return: What It Means for Investors
• All About UVXY
• The Case for VQT
• Slicing and Dicing all 31 Flavors of the VIX ETPs
• Charting the Assets of the Volatility-Based ETPs
• Why VXX Is Not a Good Short-Term or Long-Term Play
• VXX Calculations, VIX Futures and Time Decay
• First Day of Trading in VXX and VXZ a Success

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): net short VXX, VMAX, UVXY and TVIX; net long XIV, SVXY and ZIV at time of writing

The 2016 VIX Futures Term Structure: Extraordinarily Average

Two days ago, in The Year in VIX and Volatility (2016), I made no mention whatsoever of the VIX futures term structure.  Traders of the full range of VIX products (futures, options and ETPs) hopefully know by now that the entire VIX product landscape is based -- and priced -- off of VIX futures and one of the most important aspects of VIX futures is the shape of the term structure.

Long story short:  as the graphic below shows, the 2016 VIX futures term structure (double red line) was closer to its historical average (wide gray line) than any prior year since the launch of VIX futures in 2004, with the average term structure over the course of the year demonstrating a relatively modest upward sloping term structure, also known as contango.

[source(s) CBOE, VIX and More]

By way of explanation, the graphic above shows the average (mean) normalized term structure for each year since the VIX futures were launched. In normalizing the data, I have set the average front month VIX futures contract to 100 and have expressed the averages of the second through seven months as multiples of the front month.  Note that the terms structure lines are dotted and somewhat wavy for 2004 – 2006, due to the fact that the CBOE did not implement a full complement of consecutive monthly futures until October 2006.

In terms of takeaways, since I have not posted this graphic in two years, note that the term structure for 2015 was slightly flatter than average.  Looking back a couple more years, note that 2012 and 2013 saw the steepest term structure on record.  In the thirteen-year history of VIX futures, only two years saw a downward sloping term structure, also known as backwardation:  2008 and (barely, depending upon how one measures) 2009.

During the course of 2016, the VIX futures term structure moved into backwardation on four separate occasion and closed in backwardation on a total of 37 days – with 31 of those 37 days running consecutively from January 4^th to February 16^th.  These four instances and 37 days are just slightly below the average year, as can be seen in the graphic below.

[source(s) CBOE, VIX and More]

Last but not least, the average term structure for the year as well as the frequency and magnitude of the contango-backwardation dance is a strong determinant of the annual performance of the VIX ETPs and in my next post I will detail why 2016 was unlike the previous year, where Every Single VIX ETP (Long and Short) Lost Money in 2015.

Related posts:

• Average Annual Normalized VIX Futures Term Structure, 2004-2014
• VIX Futures Term Structure in 2013 Looks a Lot Like 2012
• The 2012 VIX Futures Term Structure as an Outlier
• The Year in VIX and Volatility (2016)
• Every Single VIX ETP (Long and Short) Lost Money in 2015
• The Evolution of the Holiday Effect in VIX Futures
• Revisiting the VIX:VXV Ratio
• Crazy VIX:VXV Ratio Chart
• The New VXST and the VXST:VIX Ratio
• Violent Disagreement Across VIX Futures
• Tracking the Fall in VIX Futures
• Third Steepest First-Second Month VIX Futures Contango Ever
• VIX Futures: A Tale of Two Backwardations
• New VIX Backwardation Record
• VIX Backwardation Commentary
• VIX Term Structure Evolution Over Last Ten Days
• Capitulation in Back Month VIX Futures
• VIX Futures: What Were/Are They Thinking?
• VIX Term Structure Changes Since November 20th
• Monitoring VIX Futures and Their Impact on VIX ETPs
• VXX Calculations, VIX Futures and Time Decay

For those who may be interested, you can always follow me on Twitter at @VIXandMore

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

Top VIX Crushes in History

Yesterday’s sharp downward move in the VIX gave me a reason to tweet that the volatility crush as seen in the SPX and VIX was among the top 25 in history.  Upward pressure on the VIX toward the end of the session dropped the VIX down to the 30^th largest VIX decline in history, but along the way the Twitterati raised a number of questions about volatility crushes and the VIX as a measurement tool of broad market volatility crushes.

Since I have never seen any data related to the VIX and volatility crushes before, I thought this might be an opportunity to present some of my data and talk about the findings.  In the chart below, I have captured the 25 largest one-day declines in the VIX since 1990 and have presented data showing the forward performance of the SPX in periods from one to 100 days and I have also added some brief commentary regarding the causes.  In some cases I link the volatility crush to a previous VIX spike and use some explanatory shorthand in the process.  For instance, the top crush day, May 10, 2010, followed 2 days after the 21^st largest VIX spike (“2d+ #21”).

[source(s):  CBOE, VIX and More]

Of course, most of these volatility crush days coincided with huge jumps in the SPX, but there are some interesting exceptions, not the least of which was the 0.04% decline in the SPX back on April 11, 1990.  That just happens to be the only day for which I cannot find any obvious explanatory catalyst – to the extent that a 0.04% in stocks can actually have a catalyst – but given the proximity to the upcoming Gulf War, my guess is that some sort of news related to Iraq played into this event.

Note also how many of these volatility crush instances follow other important market-moving high fear events one or two days later, in true mean reversion fashion.  Examples on this list range from the flash crash, Greece, Lehman Brothers and Bear Stearns to several VIX all-time highs, Russian political and economic crises, the Boston marathon bombing, etc.

Things get even more interesting if you compare the top 25 VIX crushes to the top 25 VIX spikes in history (for an identical table recapping the top 25 spikes refer to Last Two Days Are #5 and #6 One-Day VIX Spikes in History.)  For starters, the top 25 VIX spikes all move up at least 31%, while none of the top 25 VIX crushes managed to eclipse the 30% decline level.  Also note the differences in the mean reversion predictive value of spikes versus crushes.  In general, the performance of the SPX following VIX crushes is modestly lower than that of the SPX in general.  On the other hand, the performance of the SPX following VIX spikes is generally better than the SPX in general – much more so if the September 29, 2008 outlier is dropped from the data set.

Another point that I think is worth making speaks to the overall changes in the volatility space.  The critical data point is that 11/25 of the top 25 VIX crushes happened since the beginning 2010, while 14/25 of the top 25 VIX spikes have occurred during the same period.  This means that we have had as much in the way of big volatility moves in the list seven years as in the previous twenty years of VIX data.  In other words, the volatility landscape is changing and the rise of VIX futures and VIX ETPs are no doubt an important part of that change.

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Related posts:

• Last Two Days Are #5 and #6 One-Day VIX Spikes in History
• VIX Sets New Record with Nine Up Days in a Row
• Volatility During Crises
• Forces Acting on the VIX
• A Conceptual Framework for Volatility Events

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

Updated VIX ETP Landscape, Including VMAX and VMIN

Now that the recently launched REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) and REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (VMIN) VIX exchange-traded products have started to achieve critical mass, I thought it would be a good time to update my VIX ETP landscape chart.

In the graphic below, I have plotted all of the VIX ETPs with respect to their target maturity (X-axis) and leverage (Y-axis). 

[source(s):  VIX and More]

The most interesting change in this chart is the addition of VMAX and VMIN, which are on track to trade over 100,000 as a pair today for the first time since their launch two weeks ago.  In deciding where to plot these two issues, I note that the 10-day historical volatility of VMAX and VMIN is approximately 30% higher than their more popular competitors, VXX and XIV.  As VMAX and VMIN are actively managed and do not have a fixed target maturity, I am electing to assume that based on the early history, the target maturity is in the 2-3 week range.  Additionally, while there is no leverage being used in the traditional sense, as is the case with UVXY, TVIX and TVIZ, so far the use of VIX weekly futures in addition to the standard monthly VIX futures means that VMAX and VMIN have a higher beta than VXX and XIV.  For this reason, I have also plotted VMAX and VMIN as having slightly higher "leverage" than the group of VIX ETPs that have a target maturity of thirty days, such as VXX, XIV, etc.

Frankly, I am a little surprised that VMAX and VMIN have not attracted more interest in the trading community, as these products have features that should be very attractive to short-term traders.  For now, the bid ask-spreads are typically in the 0.05 – 0.10 range, but as these tighten up, I expect volume and trading interest will ramp up quickly.

One necrology housekeeping note of interest:  Citibank has decided to redeem early its C-Tracks Exchange-Traded Notes Based on the Citi Volatility Index Total Return (CVOL).  The last day of trading for CVOL will be May 23, 2016, with cash payments to be made to investors on May 24, 2016.  The diagonal “X” through the ticker symbol in the chart indicates that this is the last time CVOL will appear on this graphic.

Finally, when one is trading VIX ETPs, it is always essential to consider the degree of contango (or backwardation) in the VIX futures, which can translate into substantial negative roll yield.  For the record, the current month is on track to have the third largest average negative roll yield for the month in the thirteen-year history of the VIX futures.  For those who may be interested, the top two months in terms of extreme negative roll yield were March 2012 and July 2004.

Related posts:

• VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years
• Every Single VIX ETP (Long and Short) Lost Money in 2015
• Will TVIX Go To Zero?
• Four Key Drivers of the Price of TVIX
• All About UVXY
• Charting the Assets of the Volatility-Based ETPs
• Why VXX Is Not a Good Short-Term or Long-Term Play
• VXX Calculations, VIX Futures and Time Decay
• Disappointment Lurks as Volume Surges in VXX
• Who Trades the VIX and VXX?
• First Day of Trading in VXX and VXZ a Success
• CVOL Steps It Up
• Interesting New Leveraged Volatility ETN Coming from Citi

Disclosure(s): net short VXX, VMAX, UVXY, TVIX and TVIZ; net long XIV, VMIN and ZIV at time of writing

[source(s):  VIX and More]

VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years

REX Shares is launching two new VIX exchange-traded products on Tuesday in what is likely to be the most important VIX ETP launch in several years.  The REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) is the long volatility product, while the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (VMIN) is the short volatility sibling.

The launch of these two products comes at a time when the VIX ETP space had become stale and had frustrated investors who have sought out products for both long and short volatility strategies when Every Single VIX ETP (Long and Short) Lost Money in 2015.

After a flurry of innovation in the VIX ETP space from 2009 to 2011, new product offerings have slowed to a trickle over the course of the past few years, with only the mystifying AccuShares VXUP and VXDN products making it out of the gate last year in a highly-anticipated May 18^th launch that pivoted quickly from excitement to befuddlement, as investors were overwhelmed by the complexities associated with the seemingly endless flow of regular distributions, special distributions and corrective distributions.

VIX aficionados know that 2015 was also notable in that it marked the launch by the CBOE of VIX weekly futures on July 23^rd and VIX weekly options on October 8^th.  Both product launches were successful and it was just a matter of time before the new VIX weekly futures provided the foundation for a VIX ETP that was based on those futures.  While details are sketchy regarding VMAX and VMIN, they will be holding VIX weekly futures and will target a weighted-average VIX futures maturity that is less than thirty days.  These ETFs will be actively managed and it is likely that they will not have a fixed target maturity.  Theoretically, the target maturity could vary anywhere from five days to 29 days, though given the holdings and the “max” and “min” embedded in the ticker symbol, I would anticipate an aggressive target maturity on the order of 7-14 calendar days.

Whatever the target maturity, VMAX will be competing with VXX right from the outset, while VMIN will find itself up against the likes of XIV.  The competition trades approximately 100 million shares each day and is certainly vulnerable to new products that have a higher beta and should more closely track the spot/cash VIX on a daily basis.  Depending upon the target maturity of VMAX and VMIN, I would not be surprised if these products have 50% more beta than VXX and XIV.  For this reason, I would be shocked if, at the very minimum, VMAX and VMIN do not become darlings of the day-trading crowd – a forecast not unlike the one I made on November 14, 2008 in Prediction: Direxion Triple ETFs Will Revolutionize Day Trading.

Frankly, this space has been relatively inactive as of late and with VMAX and VMIN, I now have the perfect opportunity to dust off the cobwebs and spit out the analysis and opinions that once came in such machine-gun rapidity that readers came up some far-reaching possible explanations for why I was so prolific.

So…consider me back.  I’m rested, hungry and ready for some new – and old – subjects to tackle.

I’ve even managed to dig deep into the archives so that readers can easily refer to some of my musings on issues related to the above subjects.

Related posts:

• Every Single VIX ETP (Long and Short) Lost Money in 2015
• Will TVIX Go To Zero?
• Four Key Drivers of the Price of TVIX
• All About UVXY
• Charting the Assets of the Volatility-Based ETPs
• Why VXX Is Not a Good Short-Term or Long-Term Play
• VXX Calculations, VIX Futures and Time Decay
• Disappointment Lurks as Volume Surges in VXX
• Who Trades the VIX and VXX?
• First Day of Trading in VXX and VXZ a Success
• Last Two Days Are #5 and #6 One-Day VIX Spikes in History
• Prediction: Direxion Triple ETFs Will Revolutionize Day Trading
• The 1000th Post

Disclosure(s): net short VXX and net long XIV at time of writing; CBOE is an advertiser on VIX and More