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VIX ETFs - More Truth
Submitted by Salil Mehta via Statistical Ideas blog,
As markets continue at a high level, volatility falls and their associated ETF products drop to record lows. As tempting as it is to use such products for hedging or for large gains, the probability of making any ?gain with them is very low (we cite an article below that this some to ~5% through skill.)? This article here is now the 3rd installment of the "Volatility-product(s)" series of research, focusing on the meaning of these high and low records (the prior articles were on failed strategies from even god-like clairvoyance, and the other article was on probability and typical performance.)?
First, let's explore the various records that have occurred using the VXX over history. We notice that in the past ~3.5 years (890 days), there have been 163 250-day lows, and 0 250-day highs. One year is ~250 trading days, and there has ??never been such a period when one could have profitably bought and held such a product? (not even if we stretched back the VXX data the 2 additional years it has.)? And even if we move to semi-annual periods, there still has been 0 125-day highs (or 0% of the 890 days).
We also notice in the earlier article that only 10% of any 125-day periods in recent years have resulted in a gain, so it only makes directional sense that virtually none of the 10% would be both a gain and a 125-day high, jointly.
Now, one might state that part of the reason for this asymmetry in records is that because over the past ~3.5 years, volatility has come down. And this is partially true, though most could not predict that (else they would have been buying stocks on margin well in advance of late 2011). The XIV, or the inverse of the VXX, has had 86 250-day highs (or ~10% of the 890 days). But the VIX, which the VXX is better follows, has had 3 250-day highs, and only 15 250-day lows.
This is a much better balance than VXX that again has no 250-day highs, and 11 times as many 250-day lows! In the past year (as opposed to the fuller 890 day history we described above) things are more difficult for any of the volatility products. Among the VIX, VXX, and XIV, in the past 250 days, there have only been 45 250-day records (so only 6% of 750 overlapping days among the 3 products.) Of those 45 records, 36 of them (80%) have been the VXX making 250-day lows. It's been a baleful speculative vehicle, across any horizon.
The temptation is great to hedge or seek large returns through the use of these volatility products. ?Many will make a run for it anyway, but few still will really be able to be successful at it (again ~5% are profitable with skill). Instead, the gravitational burden of a continuously decaying product assaults both your performance and intelligence (someone's going to earn a lot of money from you taking on these new-aged products but it's not you!)? Part of its charm is that you are tempted by what seems to be a rare buying opportunity through record low prices, only to perpetually see an even lower record low price offered more often than you see a record high.
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In a corrupt global economic system, what can be gamed will be gamed.
<And what can't be gamed will soon be replaced with something that can.>
Yep, the only things allowed are things that can be bent to fit the narrative and the VIX has taken on LSD like qualities.....
The CB's need long spec schmucks to take the other side of their short VIX volatility dampening fraud trade.
Have had ass handed to me on this more times than........"Hi everybody, my name is Pareto and I'm an alcoholic." - "Hi Pareto".
The odds of trading VIX ETF's profitably look terrible. I guess this means we are at or near the top of the stock markets.
It's Friday, what are the odds there will be panic buying at the close to get the DOW above 18k?
I don't understand why people keep writing articles about "trading" VIX products, when they're actually talking about muppet-like long-only "investing". The VIX products are not that hard to trend-trade; the only issue is with the ones you might want to short and are hard to borrow.
“The VXX is a dangerous, chimeric creature; it’s structured like a bond, trades like a stock, follows VIX futures, and decays like an option. Handle with care.” - Vance Harwood
In other words, its a POS developed to separate mullets from their money
3.5 years is a pretty low sample size. We're dealing with an extraordinary period of 'relative' security and low volatility. That will change.
UVXY will be godlike in August and September -- probably a 10x run.
This will not be allowed to happen. The Fed will monkey-hammer VIX via S&P futures to prevent this. Have you learned nothing in the past 7 years? The best they'll allow is MAYBE a 50% run inside of a week, then out will come the hammer. GL
When volatility returns, and it will, there will be no better place to be. I did well in October.
if you must, buy SVXY puts when the Vix get demolished, like this week
If you are not long on VIX with a couple bucks of SPECULATIVE funds when the shit hits the fan you have a 0% chance of making any money. As most zero hedge readers believe this sham market has to make a huge correction to at least partially reflect reality, it really is only a matter of time.
Just look at the lifetime chart of VIX products. When shit goes bad, and goes bad fast, these products sell for THOUSANDS of dollars a share. The fact that the price has been steadily falling can be mostly accounted for by the government meddling in the 'free' markets. This cannot last forever...