VIX ETF

[etftalk]

I still have a position in the ETF, VXX, which is set up to track the VIX.

I should have sold it as soon as I saw the problem, but like a car wreck, I could not look away from the carnage this trading vehicle is doing. If the market goes into a sustained downtrend (rather than up or choppy), this divergence may change, but we'll see.

Since I purchased VXX, the VIX is basically flat, maybe down 1%, while the VXX is down over 20%.

Here is a longer-term view of the VXX compared to the action of the VIX.



Buyer beware. My recommendation would be to short this sucker. If it goes down while the VIX moves sideways, can you imagine what will happen when the VIX moves down? Well, you can see above what happens. The problem is, it is tough to find shares to short.

[etftalk]

I used today's spike in the VIX to dump VXX, and I was actually able to get some shares to short today toward the close. It is back over 21.

I also nibbled at some SSO late today but I am a little nervous about the Greece situation for Monday morning. It's a trade (not an investment) looking for a rebound in stocks next week. Let's see if the market has anything left, but after 3 strong sell-offs in a couple of weeks, we may be seeing a change in character.

[Bullitt]

Commodity ETF's are the latest fraud to hit main street. They got me in UNG.

[etftalk]

If anyone is interested...

VXX | VXN Prospectus (PDF)

[etftalk]

Originally Posted by Bullitt

Commodity ETF's are the latest fraud to hit main street. They got me in UNG.

Have you heard anyone else talk about this? To me, the poor results in these ETF's seems so blatant, that it can't possibly be true. There would be people going to jail after the release of every annual report.

I'm going to short and hold my small position in the VXX for a while to see what happens. The only way I can see this moving up in a sustained way, is if we get another 2008 bear market (which i guess is possible). A market that goes up or chops up and down should lead to lower prices in the VXX.

By the way, the VIX was up another 20% on Friday, and the VXX was up just 8%. That seems to be the trend.

I understand the problem of the 2X and 3X ETF. If the market moves in a sustained move in the direction of the ETF, it actually does very well. But obviously if the market goes against the ETF it does poorly, but also if the market "chops" the ETF loses value.

Here's an example of a 3X that has done very well during this sustained bull market:

The Russell 2000 is up 15% in 2010. The 3X small cap ETF "TNA" is up 48% in 2010.

Oh, and for tracking purposes:
4/30/10: I sold short VXX at 21.03
The VIX closed at 22.05 and
The S&P closed at 1187

[Bullitt]

Originally Posted by etftalk

Have you heard anyone else talk about this? To me, the poor results in these ETF's seems so blatant, that it can't possibly be true.

I know. I know.

We both had our timing right in NatGas, unfortunately the crooks reamed us in UNG. You had pristine timing in buying the VIX, but VXX proved wrong.

They got us. What can I say. They got us. The boys are shorting the heck out of NatGas/buying Oil and shorting VXX/buying equities.

I don't see us EVER getting to 30 on the VXX again. The fund will be defunct, as will UNG, as soon as the bear resumes.

[etftalk]

Well, my buy and hold short position was stopped out yesterday hitting my emergency stop. It wasn't a large position, but the loss was nothing to sneeze at. Dumb play.

As I've complained, the VXX did not go up as fast as the VIX went up, so it works both ways. That helped my short but it still hit the stop.



Notice that on May 3, the VIX went down sharply, but the VXX was more stable.