I've traded this things for a while, but still can not come to terms with a product whose purpose is to mimic the daily fluctuations of the CBOE's VIX and have it be so completely off....thoughts on today for example? That is a huge disparity. I understand the difference over time even a day or so, but to the minute to be this far off is odd to me....
VIX rise today is a function of its fundamental flaw - all days and minutes are created equal. So not only did the VIX expect 3.7 days of theta to come off at Tuesday open (from the Friday close price) but it also rolled a good portion (12%+) of its implied portfolio into the more expensive March options over the holiday weekend. It'll take a few days to burn that back off the index. At 11am, I'd guess about 20-25 bps comes from the holiday weekend effect and another 30 bps from the roll. Leaving about 20 bps in real increase.
You guys are awesome! Thanks. I am familiar with the products overall design as a LIM function hehe on the short side but the long side does not even seem definable no matter how the technicals are explained. What your saying means that the upside will have considerable downward pressure even if volatility actually moves up.
To wish for terrible things to happen seems like a poor bet to begin with. ;)
The investment seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract.