Friday, January 30, 2009

First Comparison of VIX and VXX Movement

It will take several days before there is sufficient data to draw a meaningful comparison between the VIX and VXX, the new VIX ETN. For better or for worse, that will not prevent me from commenting on how VXX looks coming out of the starting blocks.

My first observation is on the volume. With 143,600 shares being traded in the first three hours since VXX was launched, it looks as if this product is going to be a hit with investors. Not only is the volume high, but it has been reasonably steady too, with a few spikes along the way.

In terms of how closely VXX tracks the VIX, the one minute chart below (top) from BigCharts provides the first graphical depiction of the relationship between the two. On average, VXX (black line) has been a little less volatile than the VIX (gold line), but there have been periods when the VXX has moved more decisively than the VIX.

I have added a five minute chart (bottom) to smooth out some of the noise inherent in a one minute chart. The trends and relative movements are easier for the eye to digest in this chart and demonstrate that VXX has been significantly less volatile than the VIX in the first three hours of today’s session.

Absent any statistical analysis (coming next week), I would say that so far as today’s data indicates, VXX is an excellent though slightly sluggish (as expected) proxy for the VIX. All things considered, it is already the best trading vehicle for approximating the cash/spot VIX that has been brought to market.

[source: BigCharts]

Disclosure: Long VXX at time of writing.


Unknown said...

The vix is shaping up to make a strong move. Ive read alot about it. Here is one article who has a very strong opinion about the VIX.

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