AI
Tuesday, April 23, 2013 9:35:59 AM
Math Lesson for Tuesday
Yesterday's VIX close of 14.39 allows a great opportunity for a VIX proxy math lesson because the VIX also closed at exactly 14.39 4 weeks earlier on March 19.
So, one might assume that VXX, UVXY, SVXY etc etc etc should have been relatively unchanged for the past month!
But those contango naysayers have had their blinders on. That’s why we dedicated short-sellers and put buyers have been relatively comfortable riding through the volatility turmoil because we have contango at our back.
Furthermore, there is the oscillation decay factor working for us as well, which is amplified for the leveraged proxies, UVXY and TVIX.
First, you will note that the proximal two futures are relatively unchanged as is the contango.
Second, note that VXX dropped a very healthy 7.37%, most of that attributable to contango.
One would assume that UVXY would have dropped double that to 14.7%, but instead it dropped 20%. The extra 5% decay is due to the mathematical magic of the leveraged ETPS.
AND ALSO NOTE the performance of the inverse ETPS, XIV and SVXY. One would have assumed if VXX was down 7.37% for that period, they would have been up that much.
But as you can see, both of them were down an average of .75% (probably identical if I had tracked the intrinsic values instead).
Why??? Because inverse ETPs suffer that same magical ETP decay as do the leveraged ETPs.
The ONLY VIX proxy ETP class to have appreciated during the month was the mid-term inverse futures, eg ZIV.
Fascinating, yes! Math rocks!!!
Happy huntin’
Doc
Yesterday's VIX close of 14.39 allows a great opportunity for a VIX proxy math lesson because the VIX also closed at exactly 14.39 4 weeks earlier on March 19.
So, one might assume that VXX, UVXY, SVXY etc etc etc should have been relatively unchanged for the past month!
But those contango naysayers have had their blinders on. That’s why we dedicated short-sellers and put buyers have been relatively comfortable riding through the volatility turmoil because we have contango at our back.
Furthermore, there is the oscillation decay factor working for us as well, which is amplified for the leveraged proxies, UVXY and TVIX.
First, you will note that the proximal two futures are relatively unchanged as is the contango.
Second, note that VXX dropped a very healthy 7.37%, most of that attributable to contango.
One would assume that UVXY would have dropped double that to 14.7%, but instead it dropped 20%. The extra 5% decay is due to the mathematical magic of the leveraged ETPS.
AND ALSO NOTE the performance of the inverse ETPS, XIV and SVXY. One would have assumed if VXX was down 7.37% for that period, they would have been up that much.
But as you can see, both of them were down an average of .75% (probably identical if I had tracked the intrinsic values instead).
Why??? Because inverse ETPs suffer that same magical ETP decay as do the leveraged ETPs.
The ONLY VIX proxy ETP class to have appreciated during the month was the mid-term inverse futures, eg ZIV.
Fascinating, yes! Math rocks!!!
Happy huntin’
Doc
