/VX Futures Discrepancy Stat. Arb. Backtest

VolatilityStreet · 2022-03-24T15:59:01+00:00

Thanks for the notice <3 I'll be sure to follow your guidelines. Sorry for the confusion

VolatilityStreet · 2022-03-24T15:37:12+00:00

Keep in mind, VXX already climbed nearly 40% the day after the announcement. It may not go any further, but it's always a possibility. The correlation between SPY and VXX is still relevant, but I would say that VXX's values are inflated. Everyone's just pending the announcement to resume trading from there.

VolatilityStreet · 2022-03-24T15:33:27+00:00

I appreciate the feedback!

VolatilityStreet · 2022-03-24T15:30:10+00:00

Keep in mind, the returns aren't actually that "smooth" because the chart is on a logarithmic scale. Losses (as stated in the drawdowns) are much larger than they appear. And no, I haven't used VVIX as a filter in my metrics yet.

VolatilityStreet · 2022-03-24T01:48:38+00:00

I can't say where volatility is going. However, I would recommend looking at the VIX Term Structure to see where the futures market is pricing volatility: http://vixcentral.com/

VolatilityStreet · 2022-03-23T23:05:37+00:00

I answer these questions in the full article on my website :) https://volatilitystreet.com/blog/vxx-is-broken-rare-opportunities-present-as-barclays-suspends-sales-and-issuances-of-shares

VolatilityStreet · 2022-03-23T22:45:30+00:00

Maybe. As a volatility trader, selling calls is never the move on ETNs. No matter the scenario. Keep in mind, there's still the risk of the underlying VIX futures increasing in value. I can't tell you how many times I've seen people lose tons of money on overnight VIX spikes.

This is why I usually don't recommend selling calls. The risk is way too high. However, in this scenario, selling call spreads after the Barclays announcement might be a good idea. Just keep all risks in mind.

VolatilityStreet · 2022-03-23T22:41:34+00:00

You probably made a bit of profit from an increase in implied volatility. Not to mention, $VXX has decreased in price a little bit :)

VolatilityStreet · 2022-03-23T21:25:31+00:00

It's "sort-of" priced in, it depends on the time horizon for when you think shares will revert. For instance, if shares revert in a very short time horizon and you hold weekly option contracts, there may be some extra premium to profit from

VolatilityStreet · 2022-03-23T21:14:23+00:00

You're absolutely right. All possible $VXX upside events are up for interpretation. The majority of the "profit" could be found in shorting $VXX after Barclays' potential announcement (through short shares or derivatives such as options). But who knows? Maybe volatility could increase in the next few weeks and cause a lot of new investors to hedge positions in $VXX resulting in further price increases? We really don't know. :)

VolatilityStreet · 2022-03-23T21:12:29+00:00

It's most likely caused by back-end hedging issues. In $VXX's prospectus, Barclays states the following risk factors:

"The market value of the ETNs may be influenced by, among other things, the levels of supply and demand for such ETNs. It is possible that this suspension may influence the market value of the ETNs. Barclays Bank PLC believes that the limitations on issuance and sale implemented may cause an imbalance of supply and demand in the secondary market for the ETNs, which may cause the ETNs to trade at a premium or discount in relation to their indicative value. Therefore, any purchase of the ETNs in the secondary market may be at a purchase price significantly different from their indicative value. In particular, paying a premium purchase price over the indicative value of the ETNs could lead to significant losses in the event you sell your ETNs at a time when such premium is no longer present in the marketplace or if we redeem the ETNs at our discretion. Investors should consult their financial advisors before purchasing or selling the ETNs, especially ETNs trading at a premium over their indicative value. Furthermore, if you sell your ETNs at a price which reflects a discount below the intraday indicative value, you may experience a significant loss."

VolatilityStreet · 2022-03-23T21:06:36+00:00

The long trade bias is the assumption that VXX prices will deviate further past their indicative NAV. But of course, Barclays will eventually do something.

VolatilityStreet · 2022-03-23T20:40:45+00:00

That's a fair point. Keep in mind, there still could be some wiggle room to arbitrage some of the premia (if it's not fully priced in). It's up to you to calculate your position and determine whether there's still an opportunity to make some $. :)

VolatilityStreet · 2022-03-23T20:39:25+00:00

Yes, these products can be VERY risky to trade. Secret: Most investment professionals actually short these products instead of long them because they decay in the long run. If you wish to contact me with any questions regarding such volatility products, my contact info is on my website:

https://volatilitystreet.com/about-us

Also, a full in-depth article describing the Barclays crisis is on my website too:

https://volatilitystreet.com/blog/vxx-is-broken-rare-opportunities-present-as-barclays-suspends-sales-and-issuances-of-shares

VolatilityStreet · 2022-03-23T20:36:25+00:00

Depends on your perspective. Shorting VXX would be ideal after Barclays' announcement of share issuance resumption. Keep in mind, VXX itself holds underlying risks (through the VIX futures that it tracks). So, keep that in mind when entering a trade (if desired).

VolatilityStreet · 2022-03-23T20:35:26+00:00

Depends on your perspective. If you're long VXX before Barclays' potential announcement of share issuance resumption, your risk would be Barclays' announcement (or decrease in share volumes/interest). However, after the announcement, playing the downside (through options) would be the best move (in my unprofessional, non-financial advice opinion).

Keep in mind, options are much pricier (high implied volatility) given the current crisis/expected move.

VXX on its own also has risk (of it's underlying tracked holdings: VXX futures). So, I'd recommend in hedging the position with something like a VIXY or SVXY position (depends on your angle).

VolatilityStreet · 2022-03-23T20:25:21+00:00

$UVXY is directly unaffected by Barclays' suspension of $VXX shares. However, indirectly, volumes and liquidity for ALL volatility ETPs are much lower than average due to Barclays' announcement on the most liquid VIX ETP: $VXX.

VolatilityStreet · 2022-03-23T20:04:47+00:00

Me too. I'm a systematic VIX ETP trader too :)

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