What Caused the Volatility Tsunami on 5-Feb-2018?

In the afternoon of February 5th, 2018, what looked like a bad day for a group of high flying volatility-based products turned into a devastating decline.  Four factors combined to ruin their day: A Flawed Architecture Relying on the Past to Predict the Future Billions Under Management A Record-Breaking VIX® spike Twenty-five minutes before the close of the New York Stock exchange on February 5th, …

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Goodbye VXX, Hello VXXB

Update 2-May-2019 As Eli Mintz of VIX Central predicted, Barclays changed the tickers for VXXB and VXZB back to VXX and VXZ. This change is effective 2-May-2019. As I note below in the post, Barclays has done this sort of thing before to preserve the branding of a popular product. I doubt the ticker changes will fix one thing that Barclays lost with the VXX-VXXB …

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Precisely Forecasting Price Ranges with Volatility

Using a tool like Bollinger Bands® to forecast future price ranges is a time-honored technique but its calculations are simplified and in some situations flawed. Incorporating the log-normal nature of stock prices into the calculations gives better answers. One greed inducing aspect of volatility is that it enables us to make theoretically sound forecasts about the future.  It doesn’t matter whether it’s stock prices, annual …

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How Does VelocityShares’ ZIV Work?

Just about anyone who’s looked at a multi-year chart for a long volatility fund like Barclays’ VXX has thought about taking the short side side of that trade. VelocityShares’ ZIV is an Exchange Traded Product (ETP) that allows you to hold a short volatility position while avoiding some of the issues associated with a direct short position in VXX.  Because ZIV is tied to VIX …

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Is Shorting UVXY, TVIX, or VXX the Perfect Trade?

The charts for long volatility Exchange Traded Products (ETP) like Barclays’s VXX, VelocityShares’ 2X leverage TVIX, and PowerShares’ 1.5X levered UVXY are astonishing.

vxx-uvxy

I’m not aware of any other widely available securities that have declined like these.

Two questions come to mind:

  1. Why would anyone invest in these perennial losers?
  2. Why doesn’t everyone on the planet short these funds?

It turns out that there are reasonable reasons to buy these funds, and some people make money doing it. And a lot of people short these funds; it’s a crowded trade—to the point where it’s sometimes not possible to borrow the shares to short them.

It’s not easy money either way.

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