Comments on: Volatility Funds as a Business—How’s it Going?

By: vance3h

vance3h — Thu, 18 Oct 2012 03:31:00 +0000

Hi Tim,
Thanks for the feedback! I looked up the inflow of VXX since the beginning — $5.7B, so about $4B has been lost on VXX alone.

Regarding the VSTRPs, I have been waiting to see if they get any volume. If the CBOE website is any indication there is no open interest, so not working so far. My understanding is that VSTRPs would replicate the same process that market makers use to hedge VIX futures. If so I don’t think they would open up a new retail market–at least for customers with access to VIX futures. What bothers me is that if these strips are used for hedging VIX futures it seems like there would be arb opportunities when VIX drops due to holiday effects (Friday droop, Monday recovery). Since those moves haven’t been arb’d out it must be more complicated than that.

– Vance

By: vance3h

vance3h — Wed, 17 Oct 2012 14:32:00 +0000

Hi Andrew, I had wondered the same thing. I looked it up on http://www.indexuniverse.com/data/etf-fund-flows-tool.html?task=showETFFlowsData — answer $5.7B, so $4B has been lost…

– Vance

By: Andrew_notPorC

Andrew_notPorC — Wed, 17 Oct 2012 03:04:00 +0000

I’m curious what the total net fund flow into VXX has been. Ie, just how much capital has been lost since inception.

By: Tim Husson

Tim Husson — Tue, 16 Oct 2012 20:23:00 +0000

Vance,

Excellent summary. It really is amazing how much innovation–and loss of value–this space has seen in such a short period of time.

Have you looked into the CBOE’s new VSTRPS? It may effectively replicate direct VIX exposure using the underlying options directly, rather than relying on futures markets.

http://blog.slcg.com/2012/10/two-new-exotic-products-from-cboe.html

Do you think these will find their way into ETF or ETN form?