The Stock Sleuth

Detecting deep values in turbulent markets

VIX and the VXX Fall As Expected

There really is no mystery here. Again the talking heads on CNBC have dismissed the crowd that exclaims, “Volatility is here to stay!” and replaced them with the crowd that proclaims, “Where has all the fear gone?”.

The truth is that this is just a normal cycle absent any exogenous shocks, like global disasters, congressional budget debacles, European bond vigilantes or equity/housing bubbles bursting. If shocks don’t occur, then this is what you get.

In our last column on the vix, this was discussed at length:

http://thestocksleuth.wordpress.com/2012/04/20/lowest-volatility-in-the-monthly-options-cycle-could-be-next-week/

So the question is, where do we stand now? The easy trade is over, because now we slope up into the more volatile days of the options expiration (OPEX) cycle historically, but we are still ten trading days from the most volatile days in the cycle, which is the week BEFORE opex expiration, not opex week. Last April for example (and certainly we do not expect a repeat performance, as that would be short-sighted and stupid) the VXX etn fell for seven straight days to the 8th day following opex. That would be next Wednesday.

We still have some low volatile days ahead historically, but it is almost time to shut down the VXX puts and cash in. Then we can reload on May 20 and do it all over again. With the puts, you have defined risk, asymmetric risk/reward scenarios, and excellent liquidity.

But most important, you have history, contango, and negative roll-yield built in as your personal tailwinds.

 

 

About these ads

Filed under: Uncategorized

2 Responses

  1. I’m extremely astounded as well as your publishing skills since well much like the structure for your website. Is this fact any compensated subject matter or have you adjust it yourself? Regardless maintain the great good quality composing, it is actually scarce to seem a great site just like it these days.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Stocktwits

  • @footballfacts Aaron Williams for the Bills should single-handedly knock down the team down on the CHFF intelligence index. 10 months ago
  • VIX and the VXX May Present a Short-Term Opportunity For a 200-300% Return wp.me/p14BO5-5Y 1 year ago
  • People are missing the China story. The whole vehicle lineup has been reworked to dovetail with the One Ford Global… wp.me/s14BO5-358 2 years ago
  • @grassosteve every yr for 33 yrs? Not quite. 08 there was no test, high was Jan 1. 09 yr was down til May. 03 same. 99,96, 95,93 no test. 2 years ago

The Masters of Investing-Must Reads

Jeff Augen-The Volatility Edge in Options Trading

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 51 other followers

Follow

Get every new post delivered to your Inbox.

Join 51 other followers

%d bloggers like this: