VXX Still Defying Gravity -- But For How Long?

The iPath S&P 500 VIX Short-Term Futures ETN (VXX) has gone a full calendar quarter without a new low

Mar 5, 2015 at 8:09 AM
facebook X logo linkedin


Speaking of iPath S&P 500 VIX Short-Term Futures ETN (VXX) … it continues its 2014 pattern of behaving unhorribly (for lack of a better word). We got fairly close to taking out the all-time lows of 25.64 set all the way back on Dec. 5, but alas, the Nazz hit 5,000 and that apparently became a psychological symbol and time to start selling stocks. Or, at least, time to take a break chasing them higher.

So we never made it, and have now gone an entire quarter since the last VXX record low. That's 60 calendar days, and it's time we update the VXX Lows Table … a.k.a. "Days without an Accident" at The VXX Factory.

VXX Record Lows Since 2009

It's now the fifth-longest VXX competence streak ever! And we're two-and-a-half weeks of holding water until we get all the way up to the third-best ever.

Why does VXX continue to behave less badly? Mind you, all we're talking about is, indeed, "less bad." VXX is down about 13.6% in 2015.

One factor is the demand for VXX, as we noted yesterday. It's debatable whether that demand is bullish or bearish for the market itself, but it's not debatable that it helps support VXX itself, so long as the laws of supply and demand exist.

Another factor is simply lucky timing. VXX was probably a few days away from taking out the lows, but the market simply stopped lifting.

But neither can hold up forever. Volatility itself is modestly high versus realized volatility, and CBOE Volatility Index (VIX) futures are at a premium to VIX. So if/when the market pullback ends, VXX will resume its descent. In fact, the near-month contango is as steep as it has been in a while (click chart to enlarge).

VIX Futures Term Structure March 2015 - October 2015

Remember, the steeper the slope, the greater the headwind on VXX. I'm sticking with my position from The Great Options Tweeter VXX Debate of last month: VXX dips not from rolling a VIX future itself, but rather from the implied cost of time decay of holding a VIX future. The steeper the contango, the steeper the cost of holding a future over any unit of time.

And this slope is quite steep in the nearest two cycles, which will not resolve well for VXX. So this streak of VXX competence could end soon, after all.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI