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 …
Update TVIX is alive, and well. For information about TVIX’s reverse stock splits see this post ————————————-. Things have not been well with TVIX since Feb 21st, 2012 when Credit Suisse stopped the share creation process. In late March 2012, a modified creation process was put in place, but that has only been partially successful—the TVIX price has often been floating 5% to 10% above …
Last week the CBOE’s VIX futures set some new volume records. While volume is interesting, I think the real story is the open interest of VIX futures contracts. Is the volume just churn, or are VIX futures contracts being created or eliminated? Since raw volatility is tough to buy, VIX futures market makers must buy other things, like SPX options to hedge the …
