Stop Fighting Volatility, Invest In It by
The lulls of summer appear to be over. After 50 days of no daily stock market moves bigger than 1%, stocks have been jolted the past three days – with triple digit losses/gains in the Dow and greater than 1% movement last Friday, Monday, and Tuesday. Meanwhile, the VIX sipked over 40% higher on the pickup in activity. {Disclaimer: Past performance is not necessarily indicative of future results}.
The cleverest meme we’ve seen so far on the market movement was a play on the old Sell in May market maxim, “Sell in September or get Dismembered.”
And it appears a lot of folks are worried about just that type of outcome – dismemberment – with a record 107 million shares traded yesterday in the long volatility ETF, $VXX.
Over 107 million shares traded today in the Long Vol ETN, highest volume in history. $VXX pic.twitter.com/Jd12xtpjUv
— Charlie Bilello, CMT (@MktOutperform) September 13, 2016
Another impressive stat, seven percent of the NYSE Trade Volume has come from inverse and Volatility ETF’s, which was another all-time high.
Quite a spike in the trading of “fear” ETFs. pic.twitter.com/Yhq52jLh1c
— SentimenTrader (@sentimentrader) September 13, 2016
There’s no doubt volatility, and protecting against it, is at the forefront of everyone’s minds, but the problem with these ETF and ETN is that they are more short term bets on volatility spiking, say, tomorrow – than long-term hedges against volatility for a diversified portfolio. ETF.com describes the Long Volatility ETF $VXX as a short term, market timing option only, as it’s long term performance won’t do you any good.
“Volatility ETFs have a history of erasing vast sums of investor capital over holdings periods as short as a few months.”
So you have a lot of interest in protecting portfolios via VIX-based products, offset by the VIX being an imperfect tool for doing so. While some would see that as a structural problem, a small group of hedge fund managers are seeing it in a different light. They’re seeing the VIX not just as an index to gauge how worried you should be about your portfolio, but instead something of a new asset class where skilled traders can try and capture the structural imbalance between insurance buyers and the odds of a “claim” if you will.
They see structural alpha in these markets – where investors are overpaying for protection, and someone needs to sell it to them. Enter a handful of hedge fund managers who are doing just that, managing millions for investors via VIX futures and options market. How do they do it? Now’s your chance to meet them.
Join us on Thursday, October 13th, at the CBOE headquarters to hear from these managers, as well as CBOE Director of Education, Russell Rhoads the current environment surrounding the VIX.
(Disclaimer: Past performance is not necessarily indicative of future results)
Performance numbers provided by manager
