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iPath S&P 500 VIX ST Futures ETN Message Board

  • stockbugg stockbugg Feb 19, 2013 1:48 PM Flag

    IMPORTANT question

    If the VIX itself is up slightly - how can this (VXX) and VIXY both be down over 2.5%.
    I guess if they don't match in direction (as they are supposed to do), it's time to get outta Dodge? Help!

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    • Take a look at the conversation between Wes and I on Friday and today - couple highlights:
      (1) The holiday weekend will provide a boost to the standard VIX calculation for two reasons - volatility measures will appear to be elevated at the opening after a holiday weekend because the standard VIX calculations assume constant trading 24/7 whereas option pricing models are a bit smarter and therefore 3.75 days of theta decay didn't occur from 4pm Friday to 9:30am Tuesday.
      (2) the composition of the VIX index is constantly changing - taking more from the pricier (in vol terms) April options and less from the March options every minute. A perfect example was an hour ago as both the March series calculation and April series calculation were lower than Friday individually, but the VIX was near flat to slightly up.
      (3) Futures are not guaranteed to trade with spot indicies - see any futures contract and there are always movements inconsistent with the spot due to many factors (liquidity, time value, storage costs, interest rates etc.) In my opinion these movements are exaggerated near pricing extremes - see natural gas futures vs. spot in September and October and you'll often see some wild movements that are inconsistent.
      (4) It's a poor product for trading volatility because of the constant change in what it measures. Even if VIX correlated with the S&P at -1.00 and VIX futures with VIX index you'd still get leakage.

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