Friday, January 30, 2009

First Day of Trading in VXX and VXZ a Success

The first day of trading in the VIX ETNs was an unqualified success. Volume in the iPath S&P 500 VIX Short-Term Futures (1 month) ETN (VXX) hit 215,700 shares, while its 5 month counterpart, (VXZ), traded 73,900 shares.

To put these numbers in perspective, on the first day the Direxion triple ETFs were traded (in early November 2008), they registered volumes of 19,063 (BGU), 30,783 (TNA) and 10,313 (FAS). Less than three months later the least popular of the three ETFs is now consistently trading more than 10 million shares per day.

While predicting success for the Direxion ETFs looked like a no-brainer for me, the idiosyncrasies of the VIX and the VIX ETNs means that it is more difficult to guarantee superstar status for today’s new market entrants, even if they had a more impressive opening day. It may take a while, for instance, for investors to decide whether the new VIX ETNs are best suited to day trading, pairs trading, hedging, arbitrage or other strategies, but clearly VXX and VXZ have the potential to be in the top tier of the ETF/ETN trading vehicles.

In terms of relative price movement, the chart below highlights the differences between the most volatile cash/spot VIX (black line), the less volatile VXX (gold line), and the comparatively sluggish VXZ (blue line). At different times during the day, VXX moved at about 50-80% of the rate of the VIX. Not surprisingly, the longer-term sibling, VXZ, captured the overall upward trend in volatility, but was reluctant to reverse direction.

It is always difficult to draw meaningful conclusions from one day of data, but now that there are finally some VIX ETN data points to talk about, at least we can begin to extrapolate in the direction of a statistically significant universe.

[source: BigCharts]


BUY ON THE DIP said...

nice post.

VIX on!

Anonymous said...

great work you do!!

what is your opinion on the effects these new instruments will have on vix futures? like, volume, etc? i do my share of trading in these.

Bill Luby said...

Thanks, BOTD.


Your guess is probably as good as mine regarding the impact of the ETNs on the VIX futures. I can see some possible substitution effects, but also some arbitrage and other complex trading strategies that might include both ETN and futures positions.

This will definitely be something to watch. Of course if/when options are offered on the ETNs, it will get even more interesting.



DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2023 Bill Luby. All rights reserved.
Web Analytics