A Rare Moment of Praise for VXX

There was room for successful trades amid the latest 'winning' streak by iPath S&P 500 VIX Short-Term Futures ETN (VXX)

Mar 23, 2015 at 9:45 AM
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    For those of you exhibiting patience with your iPath S&P 500 VIX Short-Term Futures ETN (VXX) long … well, time finally ran out. Friday marked the first time that VXX hit an all-time low since Dec. 5 -- a full 71 trading days ago!

    That marks the fourth-longest streak of VXX non-ineptitude, and a mere one trading day short of tying the third-best streak. But I'm not here to bury VXX. Rather, I'm here to praise it.

    Back on Dec. 5, SPDR S&P 500 ETF Trust (SPY) closed at $208. Last Friday, it closed at $210.41. If you consider VXX a put-like hedge, you did incredibly well if you used it to cut back risk. And if you used it just as a downside play, well -- that likely panned out, too.

    That doesn't mean VXX is now "The Greatest Downside Play on Turf," though. Math is still math. CBOE Volatility Index (VIX) futures are still in contango, and VXX will have a headwind over time. It just means that you caught a decent fear wave. VIX is "only" 13 now, but that's a point higher than last time VXX was here.

    It's also worth noting that VXX had an interesting little mid-morning blip on the way to new lows. Here's the one-minute chart from Friday (click chart to enlarge).

    VXX Minute Chart from Friday, March 20

    Bad tick, you'd think. Or a fat VXX finger, maybe? There was a volume surge along with it. It's pretty clearly not an actual trade. Or is it? Here is another opinion:

    "Earlier today, when previewing today's quad witching day, we casually predicted that a 'vol surge' lay ahead. What we really meant was a vol of vol surge, because just over an hour into today's trading, an HFT algo briefly lost it as it sent the critical VXX ETF (whose continued decline today has assured that the June E-Mini contract is now trading solidly above 2100 and pushing the S&P to fresh record highs)."

    Now, I suppose that's possible. But color me skeptical that this was part of some sort of master plan to gun S&P 500 Index (SPX) over a certain level. Wouldn't it actually have the opposite effect? The order (real or not) was clearly to buy VXX. So anyone on the other side now suddenly got short volatility with a large edge versus the market. So they'd sell SPX equivalents, not buy them.

    And there was indeed a blip down at 10:45. You can squint here and see it in SPY (click chart to enlarge).

    SPY Minute Chart from Friday, March 20

    It's more like "air," though -- there was no volume surge. Perhaps there was indeed an algo blip in VXX (or VIX futures; not sure where it started), but it's pretty much a leap to find something too nefarious about a bad and quickly reversed tick in mid-morning.

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


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