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Volatility ETFs' Crazy Churn

Tyler Durden's picture


Via Alex Gloy of Lighthouse Investment Management,

Two volatility ETFs (VXX and UVXY) are having almost half of the trading volume in the world’s largest ETF (SPY). How come?

First, the facts:


SPY is heavily traded (19% of assets daily turnover) compared to IVV (also referring to the S&P 500).

But then come the volatility ETFs. Tiny VIXY (assets $145m) turns itself over 2x per day.

Why are those long-volatility ETFs so popular, given they are wasting assets in an environment with a steep volatility-futures curve (source VixCentral):


(Ceterus paribus short-term long-vola ETF’s will suffer monthly roll-losses of 11% or roughly 0.5% per trading day)

The most likely explanation is that volatility-ETFs offer leverage without the need for margin:


On August 9, 2012, SPY had a trading range of 60bps. VXX offered 220bps, topped by UVXY with 440bps.

Tiny moves in the equity market can be amplified by using volatility ETFs (not that I would endorse this). It’s leverage without leverage for the day trader.

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Thu, 08/09/2012 - 17:01 | 2692220 RmcAZ
RmcAZ's picture

On a long enough timeline, all retarded ETFs go to zero.

Thu, 08/09/2012 - 20:10 | 2692639 The Monkey
The Monkey's picture

With the central banks providing a put for assets, volatility had to fall.  With Wallstreet and the sell-side analysts ass-on-the-line, it had to be beaten into the ground.

That process has come to an end.

The bears have been in control of this market since 1422 on the S&P.  They are still in control.  The bulls have been lured into a trap.  There is a pending global recession and it's going to suck for equity.

Good luck bulls.  You'll need it.  Anything you do from here just gives me a lower entry for my leveraged shorts.

Market is going to tank big time.

Fri, 08/10/2012 - 02:14 | 2693315 satan2liberals
satan2liberals's picture

Well in that case I'm waiting for them to roll out the "obama" etf.

Thu, 08/09/2012 - 17:02 | 2692222 disabledvet
disabledvet's picture

May I interest you in some Crazy Talk with that Crazy Churn?

Thu, 08/09/2012 - 17:10 | 2692235 magpie
magpie's picture

How about some VDax or Vstoxx instead ?

Thu, 08/09/2012 - 17:13 | 2692239 Rainman
Rainman's picture

Just keeping those churn rebate checks coming !

Thu, 08/09/2012 - 17:20 | 2692247 mammoth mo
mammoth mo's picture

Because everyone knows a crash is possible even likely.

Tvix is less than 3 dollars a share from a $100.00 high a year ago.

Even getting in and losing 10 - 15% a day as a hedge and then getting out is preferred by people with large sums.

However, with the VIX itself being a manipulated number - even these players will one day walk away.

When your hedge against total chaos is being manipulated - you might have to look elsewhere for a daily hedge.



Fri, 08/10/2012 - 02:08 | 2693304 satan2liberals
satan2liberals's picture

In what manner are you suggesting Vix is being manipulated?

Thu, 08/09/2012 - 17:40 | 2692287 slaughterer
slaughterer's picture

One symbol is all that is necessary: SVXY (Ben's favorite ETF).  

Thu, 08/09/2012 - 17:48 | 2692299 machineh
machineh's picture

'It’s leverage without leverage for the day trader.'

... resulting in 'returns with no return.'

As P.T. Barnum urged the rubes, 'This way to the egress!' (and thanks for the fees!)

Fri, 08/10/2012 - 02:09 | 2693308 satan2liberals
satan2liberals's picture

I find the Vix products quite useful, each to his own I suppose.

Thu, 08/09/2012 - 17:59 | 2692328 govttrader
govttrader's picture

Trading treasury bond futures makes so much more sense...this is madness!!


Fri, 08/10/2012 - 01:06 | 2693236 Bohm Squad
Bohm Squad's picture


Thu, 08/09/2012 - 19:32 | 2692534 Robot Traders Mom
Robot Traders Mom's picture

"Tiny moves in the equity market can be amplified by using volatility ETFs (not that I would endorse this)."


God I wish you would have left that disclosure out of there so a few of the usual trolls on here would have done it and gotten hung out to dry at some point. Now they will second guess themselves...Anyways, just a note to my stuff (Have the ZH Guide to Upcoming Cliff linked, as I do a lot of ZH articles). It is almost done. I will be rolling out an official launch on ZH in a week or so. www.TopTheNews.com


Thu, 08/09/2012 - 21:01 | 2692749 Ted Baker
Ted Baker's picture

Sp5 to sink big time as much as 175 points -simply SAR

Thu, 08/09/2012 - 21:30 | 2692814 q99x2
q99x2's picture

In relatively low volatility I think you can keep buying low and selling high opposing long and short positions. And then, plow those profits back into the system. 

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