VXX Continues To Drive Upward

VIX and VXX continued their upward trend today with the VIX futures term structure flattening substantially, making it impossible for XIV and ZIV to make any upward progress.

We've been playing in the danger zone ever since the VXX Spike Risk gauge from our Daily Forecasts moved above 5.0 on 5/28, with VXX +16% since then. The flattening of the term structure today marks another possible shift in sentiment and puts the curve at risk of flipping to backwardation.

We're at a point where it is critical that...

Continue reading this post on the Members' Forum

If you are not yet a member you can Subscribe for access to Trading Volatility+.

Members' Forum Now Available

Today I am happy to announce the addition of an integrated members' forum to the Trading Volatility subscriber site.

The Forum will make it possible for Trading Volatility+ subscribers to discuss, ask questions, and share knowledge and ideas about trading VIX-related products. By pooling our collective knowledge members can help each other to improve their trading skills and increase profitability.

I will also be using the forum as a venue to share my thoughts on the market to augment the updates I send to Trading Volatility Insiders. This will allow for more open conversations and serve as an archive for reference.

If you are currently a subscriber you can go directly to the Forum to sign up.

If you'd like to become a Trading Volatility+ subscriber you can do so at the Subscribe page. We are currently running discounts on new memberships through June 20th, 2013 as part of our launch celebration so join today!

See you on the Forum!

Another Big Week For VIX - Is There More Upside?

Another week of gains for VIX (+16.5%) has made for a +30.9% move over the past 2 weeks. VIX futures gained as well this week, driving VXX up 3.4% and ZIV down 0.8%. Below is a view of the VIX futures term structure week over week:

While the VXX bias remained dismally low all week, on Tuesday evening our VXX Spike Risk Daily Forecast algorithms moved into the danger zone with a reading of 5.9. Since then VXX has gained 6%.

Our Trading Volatility+ members had the opportunity to use this information to act accordingly and mitigate risk in their trades. For just $2/day via a 6-month subscription, having access to this insight to help mitigate losses and improve gains is an absolute bargain.

XIV is now down 7.0% since our Trading Volatility Insiders received notice that we were drastically reducing our holdings on May 17th. We'll continue to keep Trading Volatility Insiders updated on all our trades and provide other market insights at no additional charge for all Trading Volatility+ subscribers.

Access to the daily forecasts, our trade notifications, and everything else outlined on the Trading Volatility+ page is available through subscription. For those interested we are currently offering a $120 discount on 6-month memberships through June 20th as part of our service launch celebration.

VIX Futures Market Update - 5/28/13

Last week saw a rise in volatility across the entire curve, with spot VIX leading the way at +13.12%.

With this move, both the short term futures inverse fund (XIV) and medium-term futures inverse fund (ZIV) lost ground on the week at -3.8% and -3.6%, respectively. Trading Volatility Insiders were informed on May 17th that we reduced our holdings in both of these funds to just half positions, thus reducing our exposure a bit until there's a better trade setup.

Trading Volatility+ subscribers will be keeping a close eye on our Daily Forecasts and VIX Futures Data as market conditions change in order to identify the next trading opportunity. At this point the roll yields for XIV and ZIV remain positive but are relatively small and provide only a slight tailwind. The equity markets are showing some signs of exhaustion in this rally and the VIX futures continue to indicate that caution is warranted.

Subscribers to Trading Volatility+ can also choose to receive updates from the Trading Volatility Insider service which includes notifications of our trade entries/exits at no additional charge.

You can sign up to become a member at the subscribe page. We are currently offering a 25% discount on 6-month memberships through June 20th as part of our service launch celebration.

Notice: Update To Historical Volatility Calculations

Changes have just been made throughout the site to the number of days that are used to calculate historical volatility.

- The 1-month lookback period now uses data from the 20 most recent trading days (HV20) instead of 21
- The 3-month lookback period now uses data from the 60 most recent trading days (HV60) instead of 63

The changes bring these metrics into line with what most traders are familiar with.

VOTE: A Trading Volatility Forum?

Looking to get your feedback on the idea of a Trading Volatility forum.

The idea would be to have a place where members can interact with each other and share their collective knowledge on strategies, technicals, insights on current conditions, etc for trading VIX products.

Vote below.

Free polls from Pollhost.com

Would you be likely to use a forum on the Trading Volatility website as a place for members to share ideas about VIX-related trades?

Yes   No

UPDATE [5/14/13]: There appear to be a lot of interest in this idea. Look for it to be ready in the near future!

New Subscription Services And Other Changes Coming To Trading Volatility

Today I have some important announcements to share with you all regarding the Trading Volatility website.

First though, I would like to thank all of you for supporting Trading Volatility. Your interest and enthusiasm for the site has been a huge source of motivation for me to continue to make improvements in order to make this one of the best volatility trading resources available on the Internet. I also want to send an extra special Thank You to those who have donated to the site. Your contributions have helped the site to grow during a critical phase.

I've really enjoyed helping people learn how to navigate the world of volatility products by sharing the knowledge and tools that I've built over the years. The number of visitors to the site has increased dramatically recently, and at times it’s been difficult to keep up with responding to all your great questions and comments.

I want to continue to be able to provide you with the information you need to successfully trade volatility products and to expand the site's capabilities, but in order to do that I need make a few changes.

Starting May 18th, some portions of this site will no longer be accessible for free. Instead, a new site, Trading Volatility+, will be made available to paying subscribers. For details on what exactly will change please see a description of the services below.

Access to Trading Volatility+ will be available for $80/month. However, during the next month I am making a six-month subscription available for $360 as a thank you for supporting the site in this early stage.

If you later decide that the service isn’t for you for whatever reason and would like to cancel your access to the site, just let me know and I’ll be happy to issue a prorated refund based on the time remaining on your subscription.

I've also had many requests for a service which communicates my VIX ETP entries and exits. The delivery mechanisms and details of the service, Trading Volatility Insider, are still being worked out. So for now this will be unofficially available at no additional cost to any Trading Volatility+ subscribers who are interested. After you sign up for Trading Volatility+, send an email to jay@tradingvolatility.net and let me know you’d like to be added to the list of people to receive updates.

For expanded descriptions of the services that will be available please visit the Trading Volatility+ page.

Referral Bonus: Do you love what Trading Volatility offers? Recommend us to a friend! For every paying subscriber you refer to us you’ll get a free month of access to Trading Volatility+.** 

Service Description Overview (effective 5/18/13):

TRADING VOLATILITY (free site)

*VIX futures term structure chart
*VIX futures quotes
*Historical market volatility quotes over various lookback periods (2 week, 4, week, 6 week, and 3 month)

*Intraday SPY Arbitrage model
*Delayed data (by 1 week): all forecasts, historical VIX data charts, and daily SPY arbitrage model
*Past Trading Volatility blog posts outlining the ins and outs of volatility ETPs

TRADING VOLATILITY+

VIX Futures Data
*VIX futures term structure chart
*VIX futures quotes
*VIX Futures metrics (XIV and ZIV roll yields, ratios of forward volatility to historical volatility, premium of front month futures to VIX, and term structure slope)
*Historical market volatility over various lookback periods (2 week, 4, week, 6 week, and 3 month)
*Six month chart of VIX Futures data
*Six month chart of actual volatility vs implied volatility
*Six month chart of front month futures to VIX premium
*Six month chart of term structure slope

  

Daily Forecasts
*VXX Bias + 6 month historical data
*VXX Spike Risk + 6 month historical data
*ZIV Bias + 6 month historical data

SPY Arbitrage
*Intraday SPY Arbitrage model
*Daily SPY Arbitrage Model

TRADING VOLATILITY INSIDER (coming soon)

*Notifications of trade entries & exits

_______

**Each referral must pay for and maintain membership to Trading Volatility+ for at least one month in order to receive the referral bonus.

The Week Ahead In VIX Futures - 5/7/13

Volatility futures across all months have been back on the decline at a fairly even pace since the spike in mid-April, as can be seen below (all charts from the VIX Futures Data page)

You can see that the overall spread and spacing between month 1 and month 7 has stayed pretty constant during this time, making for a consistent contango term structure.

You may also notice that the lines are more compressed during this time than they have been in previous months. This compression represents a flatter term structure, which can be specifically measured (using calculation of ln(M7/M1)) and plotted on the graph below.



It's another way of looking at how the slope of the term structure curve changes over time. The previous two graphs are on the same timeframe so you can directly compare what the slope looks like on days with a wide separation vs days with a narrow separation. For the past two weeks the slope of the term structure has stayed fairly constant in a pretty weak contango, with readings between 0.2 and 0.25.

I made a point about the flattening of the term structure last Wednesday as the slope reached 0.19 and the VXX Spike Risk gauge hit 5.8. The following day (May 2nd) the markets rallied and the term structure steepened back up, staying above the 0.20 mark which I find to be critical to maintain to keep inverse VIX products (XIV & ZIV) moving upwards.


So where does that leave us going forward? To answer that we move on to the Daily Forecast page.

Looking at the recent VXX Bias values, the time to look at going long XIV was when the VXX gauge crossed from  positive to negative bias on 4/17.

However, the value on the VXX Spike Risk gauge for the same day showed that the risk was a 7.3 (out of 10), indicating that VXX was very likely to see more upside:

As I noted in my recent post on using the forecast gauges, the bias is the best predictor for long term price movement while the spike risk is better for price in the next couple of days.  So according to the model, the best play was look to get long XIV was on 4/17 while VXX spiked (XIV dropped). Although because the risk gauge was elevated you want to manage that risk through either VXX call options or a smaller position until that risk gauge fell back below 5 (on 4/23). Note: Had the VXX Bias gauge turned back positive for the 4/18 forecast I'd look to exit XIV promptly.

As of today the bias remains negative for VXX so the best play is still long XIV / short VXX. The roll yield remains small, however, and the spike risk is a moderate 4.6. This is still reason for caution, and if you're not a position here already it's probably not the best time to jump in.

In terms of further downside for VXX over the next week, we're not yet in the basement as VIX could still push on down towards 3-month historical/actual volatility (HV63) which sits at 11.60, near the March VIX lows.


Looking at the ZIV forecast you can see that the bias remains positive although it appears that it could be slowing. I think this is another instance of something that is correct to stay in if you're in it, but not a great time to enter (also see the 2 year view of the ZIV bias if you haven't already).

Updates To XIV And ZIV Roll Yield Calculations; List Of Number Of Days In Remaining 2013 Roll Periods

I made a slight adjustment to the calculations of the roll yield per week for XIV and ZIV on the VIX Futures Data page. The values shown now factor in the exact number of days in the roll period (previously the calculation used a constant 21 days as an approximation).

The impact of this change is a reduction of the yield estimates that were reported yesterday by about 0.2% since the roll period for ending May 21st contains 25 days.

Below is a list of the number of days in the remaining roll periods this year.
- Ending June 18:   19 days
- Ending July 16:    19 days
- Ending Aug 20:    25 days
- Ending Sep 17:    19 days
- Ending Oct 15:    20 days
- Ending Nov 19:    25 days
- Ending Dec 17:   19 days

For more information on roll yields see this post.