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iPath S&P 500 VIX ST Futures ETN Message Board

  • stack_cheese stack_cheese Sep 18, 2010 12:30 PM Flag

    Contago question

    If front VIX month vols stay flat and back month VIX get hammered, does the VXX rally or just stop decaying?

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    • Great!

      A seasonal questioner with systematic answers



      And the deep pocket sitting behind a few contracts of derivative of derivative!

      Nothing personal just having fun

    • Assuming you can drown out the basher + pumper noise on these boards and focus on the facts, we have only witnessed the VIX's behavior during a period where the S&P went from rock bottom (March '09) to almost double a year later. The only exception was the flash crash of May '10 and looking at the chart, you can see the VIX's expected behavior as well (sharp upward movement). People focus on the seemingly continuous downward slope of the VIX and forget to also mention the seemingly continuous upward slope of the S&P during the same period.

      I also disagree with those who say the VIX is strictly a short term (as in a few days) play. If you believe that the market will move lower AND in violent swings as opposed to a controlled fashion then you want to buy it at the point where you thing this market is going to top, wait for the free fall and cash in when it stabilizes - something that might take weeks/months. The VIX is not a way to short the market (at least not in a classic manner) - it's a way to bet on violent swings on the downside. Much more focused than say the FAZ, because it's not enough that the S&P goes down, it has to (be expected in the short run) to go down in big chunks (which doesn't happen often but when it does, you see the VIX move up fast). It's a high risk-high reward ETN and certainly not for the faint-hearted retail investor looking for instant gratification.

      My position: I am waiting for $16.79 to go in 2K shares.

    • More or less, yeah. The problem with VXX since it started has always been the expectation of future volatility is greater then what we actually see. I don't know about you, but the markets are continuously surprising me to the upside. This is why VXX is decaying and will continue to do so as long as Contango exists. However the good news is, that doesn't have to be the case going forward. Sometimes past performance can be a great measure of future prices. However in the case of VXX, it tracks futures of a derivitive, of a derivitive. Not much at all can be learned from past prices.

      Just keep watching the VIX futures and invest accordingly...

      • 2 Replies to brentgolf0903
      • where do you find VIX futures

      • What i expect to happen is a volatile remainder of september, and october should be volative (historically) and the nov/dec will depend on the usual economic indicators --- if jobs remain weak, and spending remains weak, you may see some more movement out of markets so people can holiday spend (smart, i know, lol).

        Anyway, later this month and in october, the potential for backwardation exists, if volatility rises to approx 28-30 (or anything higher) then the forward two months looking into the new year SHOULD be less volatile (maybe 25 ish).

        so the potential for a brief run OUT of contago and into backwardation does exist, but as always it will be BRIEF and you must strike wile the iron is hot, that is why this is purely a day or few days trade at a time stock.

        (the reason is that if the forward contracts are priced less than the days spot, then it signals stability in the market and within days or even in the same day the spot price will gravitate towards the future price). We really need a couple of weeks of solid volatility to enter such a phase...

        few people understand how this etn works.

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