Bill Luby over at Vix and More noted the recent volume increase in TVIX the other day. TVIX is the VelocityShares Daily 2x VIX ETN. The nice thing about TVIX is that, being an ETN like VXX, it trades like a stock, typically with a $ .04 bid/ask spread and as the 2x signifies, it’s an ultra, as in ultra volatile. No options of course…if there were the spreads would be huge and basically untradeable. VIX options tend to have a $ .05 to .10 spread unless you’re actually putting on a spread trade and then you can often find penny increments on the spread midpoint. (Just trying to save you a couple bucks, trader buddies.)
So here we have VIX overlain on TVIX for 3 days in 10 minute bars. As expected, although there are short term periods of divergence, parity is the name of the game. Until we come to today’s midday….where we see a significant divergence. This may be the product of expiration dynamics (current VIX options expire on the 20th) or related to the diffential decay ETN nature of the TVIX. In any regard, this divergence does bear closer scrutiny to determine if there is in fact a tradeable edge the last few hours of each expiration cycle.
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