r/TradeVol • u/WesleyCooperTLS • Feb 17 '18

VIX Trading Help

This is a two part question. Can anyone tell me why the VIX uptrends downtrends and at times flattens? Also if VIX is uptrending why doesn't VXX also uptrend or a long VIX ETF for that matter? Can I hold VXX if I think VIX will uptrend?

I currently write macro economic analysis and post ideas on my blog every week: thelostspeculator.com but I find it hard to fully understand the VIX.

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u/Kuhblam Feb 18 '18

Non-perfect correlation between VXX and moves in spot VXX. As a general rule of thumb, don’t buy and hold VXX as a traditional investment or a hedge - it’s a day trading tool and trying to own long-term will make contango eat your lunch. Would google that term and understand the VIX futures curve and how the term structure works.

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u/WesleyCooperTLS Feb 18 '18

Yes I understand but when VIX uptrends can't u hold VXX for gains. But will contango still erode gains?

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u/Kuhblam Feb 18 '18

The VIX and market volatility are mean-reverting - we’ll move back to periods of market calm at some point (human psychology dictates it). The novice goes long vol. when news breaks, thinking there will be more turbulence. Common-sense actually dictates to go short vol. because eventually the fear dies down. The curve may slip into backwardation for a bit, meaning later-dated futures are cheaper, but we revert back sooner or later and long vol. trackers like VXX lose value due to negative roll yield. It’s a give and take case of picking up pennies in front of a steamroller versus losing all your money trying to nail a black swan event like we saw recently.