Bill, from “VIX and More”, recently posted how the volume on VXX has recently jumped up to over 4 million shares a day. Today VXX traded almost 7.5 millions shares, which I suspect is a record or near record. Good volume in a investment product tends to improve its attractiveness. VXX’s bid / ask spreads for example used to be 0.10 or more, now they have closed to a few cents. Schwab has dropped its “Hard to Borrow” notation, so selling VXX short is an open possibility (which I understand has been the case with other brokers for quite a while).
I have posted previously on the problems with the VXX. Structurally it can’t track the VIX well, and it significantly under-performs in the long term compared to similar investments, like VIX call options. But obviously people are flocking too it–perhaps because it is one of the few ways to simply profit on a market downturn (although SDS comes to mind). If their timing is good, and they only stay in for a few days, they could walk away happy, but I think most buyers will be disappointed.
I wonder why people don’t just buy VIX call options if they are just looking to profit on short term corrections. The volumes on deep in the money calls are low–there isn’t much action there. Besides being an option, I suspect the wide spreads (often 5% or more) scare off a lot of people. I have found that orders almost always fill close to the split of the bid/ask price, but that probably isn’t common knowledge.
Since VXX will likely under perform ITM VIX call options as long as VIX futures are in contango (the longer timeframe futures are more expensive than the short term ones), it might be attractive to short the VXX and buy the call options. I have to take a look at that…
