Posts Tagged
‘VXX’
by revtodd64 - October 14th, 2010 8:34 pm
I picked up this idea from Jeff Augen’s book, "Trading Realities: The Truth, the Lies and the Hype In-Between." Augen has written a fine series of books on trading options and I have bought and sampled from all of them. He notes the favorable risk/reward profile on buying VXX, which is a ETN attempting to track the short-term futures on the VIX, and selling at-the-money calls on it while the VIX is low. Augen notes that theoretically you could lower your cost basis in a year’s time to almost zero using this method every month. But it gets even more interesting using weekly options. I bought VXX ETN at $14.92 today and sold the $15 strike on the October 22 weekly options for $.58. That is about 3.8% profit if VXX does not move at all.
That is what I’m trying to average on a trade per month!
Let’s take a look at the one year chart on VXX:
You can see how low VXX has dropped. Unlike a stock you know this chart is not going to drop to zero. Volatility cannot disappear or go bankrupt. There will always be some level of volatility, so there is a limit to downside risk. The VIX, which is a measure of put buying, closed at 21.68 today, which is fairly low volatility. If you had to say which way volatility is moving right now, is it more likely to go up or down in the next month? I’m voting for up, since we have earnings season, elections and a rally that looks like it could roll over at any time. With a low VIX and higher expected volatility events, doesn’t it make sense to sell covered calls on volatility at least until the VIX clears 25.
I’m planning to sell the weekly at-the-money calls up to that point, which may only be one week if the market drops. I’m sure speculators could arrange more profitable trades, but I am looking for income and retirement investments, so I’m not getting greedy and buying calls or some other idea. I am considering selling at-the-money puts in my margin account. Let me know what you think of the idea. The risks I can foresee are poor tracking of the VIX by VXX and that volatility is driven into oblivion. But the VIX rarely drops below 15, which would be a 25%…
Tags: IRA Investing, volatility, VXX
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by Chart School - July 10th, 2010 3:30 am
Courtesy of Bill Luby at VIX and More
Truth be told, there is no such thing as a “contango bubble,” but I like how the two words look juxtaposed and it is Friday…
Bubble or not, the VIX futures are stretched to an extreme that I do not ever recall seeing and to the extent that the grapevine is whispering to Adam Warner of the Daily Options Report that the differential between the first month and third month VIX futures is at its highest level ever. (Note to self, why doesn’t the grapevine ever whisper to me?)
The chart below, courtesy of FutureSource.com, shows the difference between the VIX third month futures and front month futures (VX V0 – VX N0 in current VIX futures parlance) going back about six months. Personally, I tend to get excited when the third month VIX futures rises more than 2.00 higher than the front month, as this frequently suggests that the VXX negative roll yield contango play is starting to set up.
Some 17 months after its launch, I probably still get more questions about VXX than any other subject. As much confusion as there is about VXX, I think it is probably time to come out with an extended look at this volatility product in the next week or two.
For more on related subjects, readers are encouraged to check out:
[source: FutureSource.com]
Disclosure(s): short VXX at time of writing
Comment by Ben: I don’t understand what this means. Is it a signal to short VXX? Buy it? Or VXZ? Or what?
Bill’s response: It is not a signal to short VXX, though that is the position I currently have on right now. What it means is that the consensus is that the VIX has fallen too far, too fast. The VIX futures indicate that the market believes the VIX will spike back up into the 30s over the course of the next few months.…
Tags: Financial bubbles, futures, Stock Market, VIX, volatility, VXX
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by Chart School - June 23rd, 2010 11:04 am
Here’s an update from Allan on the VXX chart, showing a shorter-term chart on a buy signal and suggesting a possible new buy on the daily chart soon. – Ilene
Courtesy of Allan
Below is the VXX 480 min and Daily charts. The 480 minute chart, by its construction, is a good precursor for new Daily chart signals. In this case, its suggesting an imminent Buy on the VXX Daily @ 28.35, which would be a negative signal for the general market.
VXX 480 Minute Trend Model
VXX Daily Trend Model
Allan’s “Trend Following Trading Model,” is based on his trend-following trading system for buying and selling stocks and ETFs. Most trades last for weeks to months. Allan’s offering PSW readers a special 25% discount. Click here. For more details, read this introductory article.
Tags: Stock Market, trading, trends, VXX
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by Chart School - June 3rd, 2010 2:21 pm
If I could summarize my opinion of how to use the VIX (and volatility in general) in one sentence, it would be as follows. Pay attention when it tells you something unexpected.
The VIX itself yesterday did not act all that odd. It was on the weak side given that the market itself was not that cosmically strong. But between Tuesday’s VIX strength, and the somewhat self-fulfilling prophecy of the skew curve, it’s not shocking.
No, the real message lies in VIX futures, and in turn VXX. Both maintained stubborn strength yesterday as standard measures of volatility declined sharply. The VIX is now near parity with July futures, which in a vacuum is not odd. But think about what that means; the market expects to see VIX levels in the low 30′s out to mid July. That is somewhat noteworthy as we have to remember that a VIX over 30 is pretty elevated. And July is not exactly known for high volatility.
It goes further. September VIX futures are near parity to cash VIX as well. And in fact October is modestly higher….and November modestly higher than October.
We don’t know the path the options market will take between now and then, but we do know the market right here right now anticipates it will see volatility right about here. That will seem cheap if indeed we reprise 2008 this Fall, but far more likely that’s too much Fear imho.
Tags: Stock Market, VIX, volatility, VXX
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by Chart School - May 5th, 2010 10:21 am
Double post, courtesy of Bill Luby at VIX and More
…but I think 27.23 has a good chance of holding as a top.
Of course, events in Europe will ultimately determine where the VIX goes from here, but this does look like a good time to get short volatility.
Given that I have been banging the drum about VXX (iPath S&P 500 VIX Short-Term Futures ETN) since the day it was launched, now that volatility is showing some signs of coming back to life and VXX regularly trades 10-20 million shares per day, I thought it would be appropriate to provide a comparison of the performance of VXX and VIX.
For anyone who has been following this space, the substance of this week’s chart of the week should come as no surprise. Sure, volatility has been falling with almost unprecedented regularity over the course of the last 14 months, but VXX has been falling at a much faster rate than the VIX. In the last year, VXX has fallen at about twice the rate of the VIX, with the difference between the two accelerating over the course of the last 6-9 months.
As has been noted on a number of instances here, the main culprits responsible for the underperformance of VXX are the term structure of VIX futures, contango and negative roll yield.
For those who wish to get a quick overview of some of the issues behind VXX calculations and performance, Why the VXX is Not a Good Short-Term or Long-Term Play is a good place to start, with VXX Calculations, VIX Futures and Time Decay offering a more detailed explanation of what is driving the gap in performance between VXX and the VIX. An even more thorough discussion of VXX can be found in The VIX ETNs: VXX and VXZ, in the March 2010 issue of Expiring Monthly.
For more on related subjects, readers are encouraged to check out:
[source: StockCharts.com]
Disclosure(s): short VXX at time of writing; I am one of the founders and owners of Expiring Monthly
*****
For an alternative view, see the previous post: VXX – Buy signal update.
Tags: Stock Market, VIX, volatility, VXX
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by ilene - April 23rd, 2010 2:29 am
by JOHN RUBINO at Dollar Collapse
Take a look at the chart below, and note the unnaturally smooth 80% decline. Kind of makes you think “imminent bankruptcy”. But now consider that the security in question is 100% guaranteed not to fall to zero and about 90% guaranteed to stay above 10.
It’s VXX, an exchange traded fund that, according to its profile, “seeks to replicate, net of expenses, the S&P 500 VIX Short-Term Futures Total Return Index. The index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 index at various points along the volatility forward curve.”
In other words, it reflects the perceived riskiness of stocks as measured by the VIX volatility index. Lately, the volatility/riskiness of the S&P 500 has been evaporating as the Fed hands virtually free cash to pretty much everyone who asks, and the recipients buy suspiciously regular amounts of stock each day. This is leading options and futures traders to get bored and charge lower derivatives premiums.
The result is an ETF with a nice risk/reward profile. The chart below shows that twice over the past couple of decades the VIX has approached 10 before bouncing off. Below 10 is theoretically possible but would imply some kind of uneventful paradise, not very likely in this world. So let’s call 10 our downside risk. For upside potential, considering all the bad monetary/geopolitical/Goldman Sachs-related things that could happen and that it will only take one of them to spike volatility, a return to 50 or so isn’t asking too much.
Full disclosure: I’m long VXX and getting longer.
Tags: chart, Stock Market, stocks, VIX, volatility, VXX
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by Chart School - April 13th, 2010 1:18 pm
The VXX, an indicator of market volatility, is making new lows as the market goes higher. A reversal in the VXX should correspond to a reversal in the stock market. Notably, there’s a divergence forming between price and the bottom oscillator (a momentum oscillator), which means the next blip up in the index will be a (potentially tradable) buy signal. Divergences between prices and momentum oscillators precede reversals, and the technical indicators shown here are warning of a pending reversal. - Ilene
Courtesy of Allan
VXX Daily
VXX (ETF for VIX) is a measure of market volatility, when it rises, stocks go down, when it falls, as shown on this chart, the market rises.
The above chart is set up for an Advanced GET, EW "Mechanical Buy Signal" with the bottom oscillator failing to confirm the new lows in the index. The trigger will be a rise in the VXX sufficient to trigger a Trend Model Buy Signal. A prior occurrence of this set up is seen on the chart in late January and it captured a brief, but tradable rise in the VXX with a corresponding decline in the markets.
You can trade the VXX directly, or trade the underlying market indexes. Should this signal be triggered and in light of the severely overbought market conditions, I will be looking for leverage to Short one or more major market averages.
*****
Allan’s newly launched newsletter, “Trend Following Trading Model,” goes along with the trading system he’s been working on for years. Most trades last for weeks to months. A special 25% discount is available for PSW readers. Click here. For a more detailed introduction to Allan’s methods, read this introductory article.
Tags: buy signal, Divergences, indicator, momentum oscillator, prices, Stock Market, trading, trading signals, volatility, VXX
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by Chart School - August 17th, 2009 2:54 pm
Courtesy of Bill Luby at Vix and More
Based upon the search terms that are landing visitors on the blog this morning, it seems as if many readers are interested in how to trade the VIX. This question really boils down to two separate issues: strategies and trading vehicles.
Since I have talked about strategies repeatedly in this space in the past, I thought I would offer a quick summary of trading vehicles today.
First off, it is not possible to trade the VIX directly. The VIX index (sometimes referred to as the cash or spot VIX) is a statistic that the CBOE calculates and disseminates every 15 seconds during the trading day.
Fortunately, there are a number of VIX derivatives that allow traders to take positions on the VIX without owning the underlying. In no particular order, they are:
- VIX options – these include standard options as well as VIX binary options
- VIX futures – standard VIX futures contracts have a contract size of 1000 times the VIX; the recently added mini-VIX futures have a contract size of 100 times the VIX
- VIX ETNs – currently consists of two exchange traded notes: the iPath S&P 500 VIX Short-Term Futures ETN (VXX) and the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ). The former targets one month VIX futures and the latter targets five month VIX futures.
In addition to VIX products, one can always trade options on the SPX (or SPY). A long VIX position is very similar to a long SPX straddle (or strangle); a short VIX position is very similar to a short SPX straddle (or strangle.)
For some additional reading on these subjects, readers are encouraged to check out:
Tags: VIX, VIX options, VIX trading vehicles, VXX, VXZ
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January 3rd, 2012 8:20 am
Courtesy of MarketMontage. View original post here.
Ray Dalio has created a machine at hedge fund Bridgewater – not only have assets surpassed $120B, the fund continues to churn out some fantastic results for investors. Through end of August last year, the fund was up 25% YTD (and that was after an awful August for markets, and before the stampede upward of October); this after a 44% gain in 2010. Longer term, ...
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December 28th, 2011 5:24 pm
Courtesy of Blain.
The US Dollar was up and the market was down on minimal volume. And yup, that's about the extent of today's action. The biggest gainer on my watch list of 125 securities was Bankrate (RATE) with a paltry +0.8% return. Updated market charts below. See you tomorrow!
...
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November 9th, 2011 5:48 pm
Courtesy of John Nyaradi.
Major US Markets including (NYSEARCA:
DIA), (NYSEARCA:
SPY), (
NASDAQ:QQQ), and (NYSEARCA:
IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
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November 4th, 2011 5:13 pm
Courtesy of John Nyaradi.
Markets dropped slightly lower today on G-20 news, mixed economic reports, and Grecian woes.
After the confusing market action on Wall Street this week, it seems that markets cannot make up their minds after last week’s euphoric rally and Euro-zone compromise. It appeared that markets were on a meteoric rise that could have possibly carried us into Christmas, however Prime Minister Papandreou’s referendum call for Greece and MF Global’s bankruptcy soured the mood.
The SPDR Gold Trust (NYSEArca:GLD) dropped half a percent today; the fall likely represents the current troubles of MF Global Holdings (NYSEArca:MF), which filed for bankruptcy earlier this week. MF Global has ...
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August 29th, 2011 10:52 am
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
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May 25th, 2011 4:59 pm
Courtesy of Benzinga
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Visit Benzinga >
...
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March 12th, 2011 12:00 am
Top 5 RisersStockRatingAnalysis
VLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.
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AMATSTRONGBUYApplied Materials has been...
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March 10th, 2011 4:33 pm
Today’s tickers: S, FTR, JTX & SBUX
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March 6th, 2011 11:25 pm
This post is for live trades and daily comments. Please click on "comments" below to follow our live discussion. All of our current virtual trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Optrader
Swing trading virtual portfolio
One trade virtual portfolio
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March 6th, 2011 8:22 am
NEW: Elliott and Ilene are available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here's the newest Stock World Weekly: Illusion Based on a Fantasy
Comments welcome... share your thoughts.
Download Newsletter 3/6/11
Stock World Weekly archives here >
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March 1st, 2011 9:42 am
February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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