Thursday, May 21, 2009

VXX Volume Tops Million Mark as Investors Embrace New Volatility ETN

When I penned yesterday’s Record Volume in VXX, I had an inkling that the VIX-based volatility ETN might be having a coming out party soon. I did not, however, expect VXX to attract so much attention in just 24 hours.

With today’s 1,094,140 shares traded, VXX is now officially in the big leagues and is sure to be added to the watch lists of many more retail investors and find itself in the repertoire of a wider variety of hedge funds.

The chart below updates the information from yesterday’s chart and adds an on balance volume study to highlight the strength of the move off of yesterday’s bottom.

For those who may be new to VXX, it is important to keep in mind that while there is strong directional agreement between VXX and the VIX (they move in the same direction in about 6 out of every 7 sessions), VXX tends to move at only half the rate the cash/spot VIX on a daily basis. So while VXX may lag the VIX in terms of a juice factor, it is probably the best way to trade volatility if one does not wish to do so in the options or futures market.

If this almost four-month-old volatility ETN were to have a motto, perhaps it would be, “When directionally correct is good enough!”

For more information on VXX, readers may also wish to check out:

[source: StockCharts]

Disclosure: Long VIX and VXX at time of writing.


Chad said...

The VIX was up 8% and the VXX was up about 5.58% as were June VIX futures. Certainly, one of its better tracking days.

It is important to note that yesterday was the settlement date for May VIX futures and options. So, the bulk of funds in the VXX are in the front month, thus tracking cash VIX a little bit better. So, keep that in mind when trading the VXX in beginning of a new month, because that is the time when VXX funds will be most equally split between front month VIX futures and the "on deck" contract. And, with each new day in the new month, the VXX will be less weighted towards the front month as it shifts out said contract. Tracking cash VIX less and less as funds are pushed further out.

Because, as we are becoming more and more aware.......expectations for future volatility dampen given more time.

But, certainly.........the VXX KILLED the SDS today and even outperformed BGZ the 3x large cap bear fund. So, a great day for the VXX.

Anonymous said...

I already have my plans all set for tomorrow night. I'm staying in, two martinis, and reading my favorite VIX and whatever blog. I hope there is some good stuff in here.

Jeff said...

Have you compared the merits of VXX, VIX, and CSFB (Credit Suisse Fear Barometer)?

manatrader said...

Bring on the inverse VIX ETF!

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