Tracking the VIX Index—TVIX and UVXY Are Close

Updated: Nov 8th, 2015 | Vance Harwood

Update:  Citigroup has halted new share creations for CVOL, so it should be avoided.

For a long time investors have been frustrated in their desire to directly invest in the VIX index.  Now three ETNs, one by design, and the two other perhaps by accident are tracking (or out-performing) the VIX index on both a daily percentage move basis and for multi-day holding times.

UBS’ CVOL was designed to correlate well with the daily moves of VIX.   It uses 2X leverage on the 3/4 month rolling volatility futures, and then adds a variable short S&P 500 position to give the ETN some extra kick on down days to better match the VIX. CVOL didn’t use the 1/2 month rolling volatility futures because contango imposes a heavy penalty on them when the markets are quiet—the 3/4 month futures don’t suffer as much. CVOL hasn’t really caught on so far in the market place, its daily volume tends to run below 40,000 shares and its bid/ask spreads are usually in the $0.10 range. The graph below shows CVOL compared to the VIX index on a daily percentage move basis since July 1st, 2011.

Daily percentage moves of CVOL and the VIX index, click to enlarge

Historically the daily percentage moves of short term (1/2 month) volatility ETNs like VXX tend to be about 50% of the VIX index moves. Since VelocityShares’ TVIX and ProShares’ UVXY are essentially a 2X leveraged version of VXX, you might expect it to track the VIX index—and they do a pretty good job except for the effects of contango/backwardation.

TVIX compared to VIX on a daily percentage move basis.  UVXY”s performance is essentially identical to TVIX’s.

Daily percentage moves of TVIX and the VIX index, click to enlarge

While the daily percentage correlation is important, unless you’re day trading volatility (shudder) the more important attribute would be the results of holding these ETNs for a few days. In that case how well would they track to the VIX index? The chart below shows how $1000 invested in each of these starting July 1st,2011 would fare.

July 1, 2011 investment in VIX, TVIX, CVOL, VXX–click to enlarge

CVOL did the best in tracking the VIX index itself. VXX lagged, but eventually caught up due to the sustained period of backwardation for the 1/2 month rolling futures. TVIX on the other hand skyrocketed during this panicky time. A doubled benefit from backwardation was part of the gain, but the trend lines on the chart below suggests there are other factors.  I suspect the rest is from the compounding effects of 2X leverage.

TVIX, CVOL, and VXX, showing trendlines from July 1, 2011–click to enlarge

TVIX and UVXY look like the vehicle of choice if you want to bet on VIX’s moves during times of high volatility—it matches VIX’s daily moves well and greatly benefits from backwardation.

Related Posts

Sunday, November 8th, 2015 | Vance Harwood
  • jones

    Another great post, thanks for the info. I always looked for an etf to long the vix when it reached levels of 15-17 this year which was a very good level to take long but there was no point in taking vxx because of contango. XVZ which you posted recently is not good enough, doens’t give good returns comparing to the vix and still not liquid.
    CVOL looks like the best option but again it must be liquid in order to trade it and it doens’t seem to be so.
    Can you try to figure out why tvix gives more than double vxx? it’s interesting if we remember leveraged etf’s has decay which supposed to give you less than double the return and here we get almost *3, very interesting to know why, I quess in bullish time it would also behave much worse than double vxx, can you please check it?

  • Hi Jones,
    Yes, the discrepancy is bugging me too. It will be a few days at least before I will look at it again because I’m working on a CVOL backtest consulting project. I suspect it is a compounding effect, the same thing that kills the leveraged funds on the negative side.
    Regarding CVOL, the bid/ask spread currently is running about 0.7%, so given the volatility of CVOL that is a pretty small penalty. I suspect unless you are trading really big bucks that it would be reasonably liquid in terms of being to buy / sell without moving the price.

    — Vance

  • Michael


    My 2 cents worth…

    The compounding on leveraged ETFs can either work for you or against you.

    If the underlying is very volatile around a ‘mean’, compounding will kill the ETF, as you are constantly buying high and selling low to rebalance (whipsaw)

    If the underlying ‘trends’ without many outsized moves away from that trend…then the compounding benefits you (i.e. you are mostly adding to a winning position as it moves one way)

    In general the compounding has benefited VXX Etfs as the VXX is much more trendy than say XLF etc, where 3x ETFs have been destroyed from much more erratic price patterns over the years