Whether you are long or short volatility ETP’s, you really ought to know what you are trading. Here are a few essential facts about UVXY, VXX, TVIX, and VIXY:
UVXY – ProShares Ultra VIX Short-Term Futures ETF
Inception date: October 3, 2011
Expense ratio: 0.95%Optionable: Yes
VXX – iPath S&P 500 VIX Short-Term Futures ETN
Inception date: January 29, 2009
Maturity (when it will end): January 30, 2019
Expense ratio: 0.89%
Optionable: Yes
TVIX – VelocityShares Daily 2x VIX Short-Term ETN
Inception date: November 29, 2010
Expense ratio: 1.65%
Optionable: No
VIXY – ProShares VIX Short-Term Futures ETF
Inception date: January 3, 2011
Expense ratio: 0.85%
Optionable: Yes
The first thing we can observe is that the expense ratios (what the fund managers indirectly charge you per year for owning these financial products) are somewhat high. Compare TVIX’s expense ratio of 1.65% to, for example, the popular SPY’s expense ratio of 0.09%, and you’ll surely see that these long VIX products are no bargain. Given the poor performance of these VIX products, these high expense ratios are, in effect, adding insult to injury.
Another thing to note is that none of these long volatility products existed in 2008. Therefore, no one knows what it’s like to short them during the peak of a massive financial crisis. That’s why small position sizing and hedging strategies are essential if you’re shorting (or selling calls on) any of these long-vol ETP’s.
A third thing to notice is that while UVXY, VXX, and VIXY are optionable, TVIX is not. This means that shorting UVXY, VXX, and VIXY might be preferable to shorting TVIX, as is it possible to hedge short positions in UVXY, VXX, and VIXY by purchasing calls, whereas this hedging strategy is currently not possible with TVIX.
These quick facts are important, but they are only the beginning. No matter what your position might be, it is crucial to conduct thorough research and learn all you can about any financial product you’re trading.
Nice info Dave. VXX – Maturity (when it will end): January 30, 2019. This means it will no longer be tradable after that date? Will it replaced by another long VIX instrument?
Thanks
The iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) and iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ) are scheduled to mature in January 30, 2019. However, ahead of the eventual maturation, Barclays is planning to launch the iPath Series B S&P 500 VIX Short-Term Futures ETNs (VXXB) and the iPath Series B S&P 500 VIX Mid-Term Futures ETNs (VXZB). No specific release date was provided.
Thank you for the comment, Ethan. It appears that VXX will be replaced by VXXB: https://www.etftrends.com/barclays-expected-to-replace-maturing-vix-etns/ So, no worries if you’re a VXX trader…
Thanks Seth! that is great to know.