VXX is an ultimate “short-and-hold” ETN.
Buy The VIX For A 200% Gainhttp://seekingalpha.com/article/681801-buy-the-vix-for-a-200-gain
From current levels those investors interested in a speculative play should look no further than the VIX.
This trade in only for a small part of a portfolio, there are many other core positions that are better suited to take advantage of the declines that lie ahead in a prudent manner (find ideashttp://www.stocktradersdaily.com/). But this trade could increase by as much as 200% in the next handful of months.
The basis is the risks that exist in our economy + the risks that exist in Europe + my longer term macroeconomic work (The Investment Rate) + the economic headwinds coming at the end of the year (higher taxes and lower spending) + the ineffectiveness of central banks + I could go on …
The risks are vast. My models tell me we could see a 50% decline from current levels (this might take years but we are likely to get hit soon as well), and if that is true I expect volatility levels to skyrocket and the fear gauge to be a great reward for speculative positions.
Specifically, iPath S&P 500 VIX Short-Term Futures ETN (VXXhttp://seekingalpha.com/symbol/vxx) is a great buy from current levels in my opinion. I know it has deterioration, and if you prefer to buy options on the VIX directly go ahead. But my outlook is for substantially lower market levels, substantially higher volatility levels, and my work suggests that anyone embracing this side (the downside) of the market will make a tremendous amount of money in the months and even years ahead. Anyone buying and holding has another thing coming.
The writing is on the Wall.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Ø To goad people into buying VXX at this time and holding for a long period of time (months) until the world blows up is very very very irresponsible.
Do not listen to this blogger. Your VXX position can be a half of what you start with before it skyrockets 200%.
Instead spend the time getting serious about understanding how VXX works and the underlying VIX futures. Then, time your VXX purchase when you see the world start crumbling around you. You may miss the first 20% move in VXX but at least you will have convinced yourself that its the correct time.
Do not buy VXX when there is a steep monthly roll cost.
Ø Do not ever buy or hold VXX again until you know what the Vix futures are and how the VXX ETN is almost guaranteed to lose value over time due to roll cost. VXX is best used as a speculative short term timed trade and not a buy-and-hold investment.
To explain the roll cost, every day roughly one twentieth of VXX holdings in the near month futures contracts are sold and replaced with the same amount of next month futures. Most of the time, the near month future is at a lower value than the next month because investors tend to expect hell to break loose in the future, not tomorrow.
For example, today, July expiration future is $20.21 and August expiration future is $21.69 so there is a 7.3% premium on August. Since every day we pay more to replace the futures contracts with new futures contracts, we are paying this roll cost. Futures prices change wildly every day but imagine If the futures values did not change for an entire month, you would lose 7% of your investment.
If you are lucky, all hell breaks loose in europe this week, VXX spikes and then you can sell to get your money back.
However, I am not predicting that will happen. Rather, I expect that the S&P will drift sideways for the next few weeks and VXX will lose value in the same period of time.
Ø best way to play is svxy & uvxy as they hold the actual futures contract so virtually no premium or discount.
Then buy the short volatility svxy when vix futures are at a high or very short term trade buy of long volatility uvxy when vix futures are at a low.
honestly it sounds like you need a lot of homework before you purchase anything. By the way the market will still be there when you have a handle on things. If you think the etf’s etn’s are complicated I suggest absolutely no purchase of options.
Ø If you don’t know anything about it, that’s an excellent reason not to own it. “Invest in what you know” is pretty universal investment advice.
If you want to see the effect of that roll cost, just look up (VXXhttp://seekingalpha.com/symbol/vxx), and check a 5 year view to smooth out the short term bumps. That geometric race to 0 is what is happening to your money if you sit in this long-term.
Ø QE1 and QE2 caused really nice market rallies in two ways.
the promise of printing money makes the dollar value drop which makes everything else go up in value (Gold, Companies, property, Oil)
QE is where the central bank buys risky assets like bonds or mortages, taking some risk out of the overall interconnected banking system.
both cause markets to rally, and VIX to drop. If QE3 is announced, look for the Vix to drop.
Ø This year the problems are worse in Europe then last year. We had a flash crash in 10’ over Greece, Moody’s downgrade in 11’, and look at that, a Moody’s downgrade on banks in 12’. Banks will need more collateral, Spain is falling, and so is Italy.
For all those who say VXX is not a good buy…You need to talk about backwardation also. I made serious dough in VXX after the market started melting down.
Ø For those who want to buy VXX think twice. It is a very risky investment. We are still in con tango. Despite Moody’s downgrading banks we had no volatility spike. Greece had new government and we are taking another year at least till things will start worsen. Until then, you will have range bounded trade in VXX. It can go down as much as another 30 percent.
Ø Volatility does not stay high for prolonged periods of time. Whenever it spikes, it always comes down and so does VIX and all its derivatives.
Whenever VIX spikes above 50, short VXX (or buy SVXY or XIV).
VXX is an ultimate “short-and-hold” ETN.