In the past you could invest in mid-term volatility, four to seven months out, without worrying too much about the erosive effects of contango. That’s not the case anymore. Strategies that hold long/short positions in mid-term and short term VIX futures as well as ETPs that hold mid-termVIX futures such as Barclays’ VXZ and XVZ and ProShare’s VIXM are getting dragged down. Most of …
Recommended Papers Tales of the Unexpected by Andrew Haldane This accessible paper (only one equation) is the best that I’ve ever read on the differences between processes accurately modeled by Gaussian/normal distributions and those better matched by power law distributions. I have seen this distinction made many times, but this paper provided examples and reasoning that really helped me internalize the differences. Most of our stock …
An ideal volatility investment would hold its value during quiet times and then ride volatility up as the market panics. Barclays’ VQT and Invesco’s PHDG are two Exchange Traded Products (ETPs) that are designed to fill this need. These two products use the same methodology but differ in that VQT does not distribute dividends, effectively automatically reinvesting dividends, while PHDG distributes any dividends quarterly. The …
In terms of assets Barclays’ “S&P 500 VIX Short-Term Futures” ETN is among the leaders in volatility ETFs with around 500 million dollars under management. I suspect it’s also one of the leaders in investor confusion. Although VIX is in its formal name VXXB doesn’t actually track the CBOE’s VIX index with any degree of precision. In fact, it’s not unusual for VXXB and VIX to …
The market recoveries from the Tech Crash and the Financial Crash were remarkably similar. As I blogged in February 2012, the S&P 500 index closed out the 2009 to 2012 period within 4 percent of the index 6 years before. The 2012 year market, just like 2011, started out fast but the spring correction brought it back to the old path. In …
