I mentioned the VXX 6 months ago when its prospects looked bleak to dismal. Things haven’t improved any since then but the I-Path team at Barclays resorted to a little shell game of sorts recently when they instituted a 4:1 reverse split to pump up this short sellers dream that was otherwise on it’s way to zero.
Above are comparison weekly charts of VXX and VIX. While the VIX has experienced the same pervasive down slope as VXX over this time frame, the VIX has at least shown some volatility, in turn providing a few unusual opportunities to capitalize on over and under extensions of risk. Most of the disparity between VXX and VIX can be traced to their compositions: VXX is an ETN , or exchange traded note comprised of various VIX futures so it is really a derivative of the VIX, but trades just like a stock or ETF with a penny or 2 spread and a daily volume close to 10M. The VIX trades only as an option chain with its own delta and IV to confuse and frustrate potential traders. The definitive explanation of the VIX can be found over at Bill Luby’s site, a treasure trove for would be VIX aficionados. Bill maintains an extensive archive of VIX related posts and articles for enquiring minds. VXX was introduced back in Jan 09 when the VIX was at 49, volatility was the name of the game and a number of such opportunistic products hit the market. Talk about selling at the top. My tactical approach to trading the VXX at the time of my initial post was to simply short every rally . . .an approach I still believe offers the best long term R/R ratio.
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