Thursday, March 12, 2009

VXX Sets New Volume Record

VXX, the VIX ETN launched at the end of January, set a new volume record yesterday, with 336,384 shares traded. This breaks the previous record that was set on the second day of trading, back at the beginning of February.

Though it is too early to tell from the data, I suspect that VXX trading volume will prove to be a meaningful sentiment indicator with the passage of time. Volume climaxes should provide some insight into the mindset of the retail trader and provide some contrarian signals at sentiment extremes.

With all that said, I was a little surprised to see the new VXX volume record established yesterday. As the brokers I use do not allow VXX to be traded on margin and thus do not allow VXX to be sold short, I am led to conclude that yesterday’s volume record is most likely speculative activity on the part of those who think the hoopla over the recent mini-rally and talk of the death of volatility are premature.

Stay tuned for more on this subject going forward…

[source: StockCharts]


stonebat said...

is this bullish sign?

buy double triple leveraged etfs and buy VXX as a hedging?

Bill Luby said...

My hunch is that the VXX volume spike is a (contrarian) bearish sign.

My thinking is partly due to the countless number of people who have purchased VIX options and then emailed me with some questions about why the prices are not moving as they thought they would...only for me to discover that they had no idea VIX options are not based on the cash/spot VIX index and did not know when they expired, when the last day of trading was, or even how settlement was determined.

So I suspect people who think "options are too complicated for me, but I understand ETFs and ETNs" could probably get in over their heads fairly quickly with VXX -- and that VXX longs are probably less sophisticated investors than (retail) VIX options traders.

Your scenario of VXX as a hedge instead of a speculative directional bet makes some sense. I would love to be able to get a better sense of VXX activity.

Maybe I should put a poll up.


stonebat said...

lol. some don't even know vix oe day?

last july when market was making a bottom, large amounts of deep otm vix call options were bought. you know... deep otm vix call options are a lot cheaper now. if it is cheaper to hedge, why not buy equities with hedging? that seems bullish case for me.

stonebat said...

vxx is even better for some people... i guess. vix options have OE date. but vxx is... etf.

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