Just about anyone who’s looked at a multi-year chart for a long volatility fund like Barclays’ VXX has thought about taking the other side of the trade. ProShares’ SVXY is an Exchange Traded Fund (ETF) that allows you to bet against funds like VXX while avoiding some of the issues associated with a direct short. This post will discuss SVXY‘s inner workings, including how it …
After every crash or major geopolitical event that roils the market we are exposed to graphics like this one containing sigma numbers: The message associated with these charts is usually, “We should be very worried because the events that just occurred were really unlikely.” The reader, on the other hand, should be thinking: the person that wrote this really doesn’t understand statistics or Black Swans. …
While it’s certain that short-term volatility exchange traded products (ETPs) like VXX, TVIX, and UVXY are doomed to a contango driven march towards zero, their decay rates are not consistent. Things like bear markets and big corrections can cause big upward swings.
Everyone agrees the normal distribution isn’t a great statistical model for stock market returns, but no generally accepted alternative has emerged. A bottom-up simulation points to the Laplace distribution as a much better choice. A well-known problem in financial risk assessment is the failure of the normal distribution (also known as the Gaussian distribution) to correctly predict big up or down days on the stock …
Serious volatility watchers are always observing a three-ring circus. The left ring holds the general market. Center ring has options on the S&P 500 and the various CBOE VIX® style indexes and to the right are VIX futures, Volatility Exchange Traded Products like VXX, UVXY, TVIX, and XIV plus associated options. Activities in the three rings usually follow a familiar choreographed pattern. The VIX moves …
