VIX ETPs Flash Some Green in 2016

Last year I shocked quite a few investors and media outlets with the publication of Every Single VIX ETP (Long and Short) Lost Money in 2015.  My intent was not to tar and feather the VIX exchange-traded products landscape, but to highlight the fact that in an environment characterized by sharp VIX spikes and other volatility extremes, the power of volatility compounding price decay can overwhelm both long and inverse ETPs. 

In sharp contrast to across-the-board losses in 2015, the performance of VIX ETPs in 2016 was much more balanced and in line with historical norms.  While there were some sharp VIX spikes, the combination moderate volatility, above-average contango and persistent mean reversion translated into a sharp down year for the long VIX ETPs and a strong up year for the inverse VIX ETPs.  The more complex multi-leg, long-short and dynamic VIX strategy ETPs were closest to breaking even for the year, with half of these posting modest gains and half posting small losses.

In the graphic below, I have plotted the performance of all twenty VIX-based ETPs with respect to leverage and maturity, using leverage on the y-axis and maturity on the x-axis.  This group includes five VIX strategy ETPs that have no easily discernible point on the leverage-maturity grid.  Depending on how finely you wish to split hairs, these twenty ETPs account for anywhere from fourteen to eighteen unique ways to trade volatility long and short, across various maturities and according to a wide variety of strategic approaches. 

[source(s): VIX and More]

On the plus side, while both XIV and SVXY were up over 80% during calendar 2016, this performance falls short of the 2012 and 2013 numbers, where each ETP gained more than 100% in both years.  Similarly, while losses of over 93% for UVXY and TVIX must sound like a worst-case scenario for these two products, losses were over 97% in 2012 and just slightly better – at -92% – in 2013.  In terms of consistent winners, while their numbers have been more modest, the most consistent gainers in the VIX ETP space have been ZIV, TRSK and SPXH.

Two new VIX ETPs entered the fray in 2016:  VMIN and VMAX.  While these products have not yet attracted the interest of investors that I believe is warranted (VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years), there is still time for investors to discover these products.  For the record, VMIN was launched on May 2, 2016 and outperformed both XIV and SVXY from the launch date until the end of the year, racking up an impressive 80.5% return in just eights months of trading.  Going forward, I would expect VMIN to regularly be the top performer in any period in which the inverse ETPs post positive returns.

For those who may be wondering, the VIX index was down 22.9% for the year, while the front month VIX futures product ended the year with a loss of 18.3%.

As is typically the case, contango was a significant performance driver during the course of the year.  Contango affecting the front month and second month VIX futures averaged a relatively robust 8.3% per month during the year (the highest since 2012), while contango between the fourth month and seventh month was slightly above average at 1.8% per month.

During the course of the year, five VIX ETPs were shuttered.  These include VXUP and VXDN, XVIX, CVOL and VQTS.  The biggest factors in the demise of these products was a lack of volume and assets.  In the case of VXUP and VXDN, the product complexity and cumbersome array of distributions also helped to quell investor enthusiasm.  Last but not least, I elected to drop XXV and IVOP from this list as these zombie ETPs both have less than 1% exposure to their underlying volatility index due to the lack of daily rebalancing.  As a result, these have become almost entirely all-cash vehicles, with a dash of volatility.  (For those who are curious about these instruments, follow the links above, click on the link to the prospectus and do a keyword search for “participation.”)

As an aside, for those who may be wondering, the flurry of recent posts is not an anomaly.  There is a lot to be said about the VIX, volatility, ETPs, market sentiment and many of my other areas of interest. With the the-year anniversary of the VIX and More blog just three days away, this seems like a good time to dive head first back into the fray.

Related posts:

• The Year in VIX and Volatility (2016)
• The 2016 VIX Futures Term Structure: Extraordinarily Average
• My Low Volatility Prediction for 2016: Both Idiocy and Genius
• Every Single VIX ETP (Long and Short) Lost Money in 2015
• Performance of VIX ETPs in 2013
• Performance of VIX ETPs During the Recent Debt Ceiling Crisis
• VIX ETP Performance in 2012
• Expanded Performance of Volatility-Hedged and Related ETPs
• Performance of Volatility-Hedged ETPs
• Performance of VIX ETP Hedges in Current Selloff
• Comparing SPLV and VQT
• ZIV Undeservedly Neglected
• Will TVIX Go To Zero?
• Four Key Drivers of the Price of TVIX
• Credit Suisse Suspends Creation Units in TVIX: What It Means
• TVIX Creation Units Return: What It Means for Investors
• All About UVXY
• The Case for VQT
• Slicing and Dicing all 31 Flavors of the VIX ETPs
• Charting the Assets of the Volatility-Based ETPs
• Why VXX Is Not a Good Short-Term or Long-Term Play
• VXX Calculations, VIX Futures and Time Decay
• First Day of Trading in VXX and VXZ a Success

For those who may be interested, you can always follow me on Twitter at @VIXandMore

Disclosure(s): net short VXX, VMAX, UVXY and TVIX; net long XIV, SVXY and ZIV at time of writing

VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years

REX Shares is launching two new VIX exchange-traded products on Tuesday in what is likely to be the most important VIX ETP launch in several years.  The REX VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) is the long volatility product, while the REX VolMAXX Inverse VIX Weekly Futures Strategy ETF (VMIN) is the short volatility sibling.

The launch of these two products comes at a time when the VIX ETP space had become stale and had frustrated investors who have sought out products for both long and short volatility strategies when Every Single VIX ETP (Long and Short) Lost Money in 2015.

After a flurry of innovation in the VIX ETP space from 2009 to 2011, new product offerings have slowed to a trickle over the course of the past few years, with only the mystifying AccuShares VXUP and VXDN products making it out of the gate last year in a highly-anticipated May 18^th launch that pivoted quickly from excitement to befuddlement, as investors were overwhelmed by the complexities associated with the seemingly endless flow of regular distributions, special distributions and corrective distributions.

VIX aficionados know that 2015 was also notable in that it marked the launch by the CBOE of VIX weekly futures on July 23^rd and VIX weekly options on October 8^th.  Both product launches were successful and it was just a matter of time before the new VIX weekly futures provided the foundation for a VIX ETP that was based on those futures.  While details are sketchy regarding VMAX and VMIN, they will be holding VIX weekly futures and will target a weighted-average VIX futures maturity that is less than thirty days.  These ETFs will be actively managed and it is likely that they will not have a fixed target maturity.  Theoretically, the target maturity could vary anywhere from five days to 29 days, though given the holdings and the “max” and “min” embedded in the ticker symbol, I would anticipate an aggressive target maturity on the order of 7-14 calendar days.

Whatever the target maturity, VMAX will be competing with VXX right from the outset, while VMIN will find itself up against the likes of XIV.  The competition trades approximately 100 million shares each day and is certainly vulnerable to new products that have a higher beta and should more closely track the spot/cash VIX on a daily basis.  Depending upon the target maturity of VMAX and VMIN, I would not be surprised if these products have 50% more beta than VXX and XIV.  For this reason, I would be shocked if, at the very minimum, VMAX and VMIN do not become darlings of the day-trading crowd – a forecast not unlike the one I made on November 14, 2008 in Prediction: Direxion Triple ETFs Will Revolutionize Day Trading.

Frankly, this space has been relatively inactive as of late and with VMAX and VMIN, I now have the perfect opportunity to dust off the cobwebs and spit out the analysis and opinions that once came in such machine-gun rapidity that readers came up some far-reaching possible explanations for why I was so prolific.

So…consider me back.  I’m rested, hungry and ready for some new – and old – subjects to tackle.

I’ve even managed to dig deep into the archives so that readers can easily refer to some of my musings on issues related to the above subjects.

Related posts:

• Every Single VIX ETP (Long and Short) Lost Money in 2015
• Will TVIX Go To Zero?
• Four Key Drivers of the Price of TVIX
• All About UVXY
• Charting the Assets of the Volatility-Based ETPs
• Why VXX Is Not a Good Short-Term or Long-Term Play
• VXX Calculations, VIX Futures and Time Decay
• Disappointment Lurks as Volume Surges in VXX
• Who Trades the VIX and VXX?
• First Day of Trading in VXX and VXZ a Success
• Last Two Days Are #5 and #6 One-Day VIX Spikes in History
• Prediction: Direxion Triple ETFs Will Revolutionize Day Trading
• The 1000th Post

Disclosure(s): net short VXX and net long XIV at time of writing; CBOE is an advertiser on VIX and More

The Current VIX ETP Landscape

I have been writing about VIX ETPs since the launch of the initial duo of VXX and VXZ back in January 2009 and from 2010 onward I have been plotting all of them on a leverage/maturity grid like the one below. It is amazing how often various VIX ETP investors mentioned one of these charts when I talk to them. Even through the VIX ETP space has been relatively stable as of late, I have not updated this graphic since early 2014, so a refresh is long overdue.

For those who have not been following along over the years, I have plotted every VIX-based ETP using leverage on the Y-axis and maturity on the X-axis. With the advent of what I am calling VIX strategy ETPs, I have isolated in their own box in the lower right hand corner a half dozen of these products whose characteristics do not necessarily imply a fixed point on Cartesian coordinate system.

The key at the bottom highlights various salient features of each of these products. From previous incarnations, I have retained the presence of non-VIX legs (typically positions in SPX/SPY), the combination of both long and short legs, dynamic allocation of the legs and optionability. I have also shaded areas where there is high leverage/compounding risk as well as high roll yield risk. Not surprisingly, these risks converge at TVIX and UVXY, two of the more infamous VIX ETPs.  Another carryover is font color, where black indicates ETFs and blue is for ETNs.  This time around I have also added yellow stars for those ETPs with an average daily volume of 1,000,000 or higher and pink stars for ETPs with an average daily volume between 100,000 and 1,000,000. Note that while CVOL technically makes the cut, at today’s closing price of 0.40, any sort of meaningful reverse split to raise the price about 5 or 10 would highlight just how illiquid this issue is. In fact, only six VIX ETPs pass the one million share screen: TVIX, UVXY, VIXY, VXX, SVXY and XIV.

[source(s): VIX and More]

There are three new additions to this graphic. The most notable of these are VXUP and VXDN, which were launched by AccuShares back in May. These products deserve a post (or series of posts) dedicated to some of the issues surrounding them, but the short version is that high complexity, frequent distributions and consistent tracking errors resulted in a product that investors decided was not worth their trouble. The other “new” products is, VQTS, the first ETP that tracks the SPX VEQTOR Switch Index, making it a relative of VQT and PHDG, but one which uses a dynamic allocation to VIX futures to achieve a 10% target realized (historical) volatility. VQTS was launched in December 2014 and like most VIX ETPs, has struggled to reach critical mass.

While the VIX ETP market is showing some signs of maturing, there are many new and exciting developments in terms of low volatility ETPs and more broadly in the ETP space in general. As I am currently at the IMN 20th Annual Global Indexing & ETF Conference – and scheduled to speak on a panel, “Trading the VIX: Riding Today's Waves of Volatility” with Larry McDonald, Mark Shore and Matt Moran tomorrow – this seems like a good time to devote more time to writing and in particular to resurrecting the “and More” portion of this blog.

Related posts (a selection from literally hundreds of posts on VIX ETPs):

• Performance of VIX ETPs in 2013
• Performance of VIX ETPs During the Recent Debt Ceiling Crisis
• VIX ETP Performance in 2012
• Expanded Performance of Volatility-Hedged and Related ETPs
• Performance of Volatility-Hedged ETPs
• Performance of VIX ETP Hedges in Current Selloff
• Comparing SPLV and VQT
• ZIV Undeservedly Neglected
• Will TVIX Go To Zero?
• Four Key Drivers of the Price of TVIX
• Credit Suisse Suspends Creation Units in TVIX: What It Means
• TVIX Creation Units Return: What It Means for Investors
• All About UVXY
• The Case for VQT
• Slicing and Dicing all 31 Flavors of the VIX ETPs
• Charting the Assets of the Volatility-Based ETPs
• Why VXX Is Not a Good Short-Term or Long-Term Play
• VXX Calculations, VIX Futures and Time Decay
• First Day of Trading in VXX and VXZ a Success

Disclosure(s): net short VIX, VXX, UVXY and TVIX; net long SVXY, XIV and ZIV at time of writing