Friday, 2 June 2017

TVIX, UVXY - the VIX-long trade remains dead

With the VIX settling the week at 9.75, it was another bearish week for the 2x leveraged bullish VIX instruments, with TVIX and UVXY, both seeing a net weekly decline of -4.1%. The mid term outlook is for continued declines, as the VIX-long trade remains dead.

TVIX, daily

UVXY, daily


Its been some considerable time since I've highlighted the VIX instruments. Part of the reason is I'm just more interested in other things. The main reason though... since last summer, the VIX-long trade is effectively dead.

Some years ago, VIX 16/15s would have been historically low. Today, we're regularly seeing the 9s. Does anyone seriously think the 8s or 7s aren't possible this summer?

TVIX and UVXY have a number of inherent problems, not least futures rollover costs, but even more so.. the issue of statistical decay.

To me, the VIX-long trade is dead, and will likely remain dead across the summer. Sure, an equity retrace of 5% or so, is quite probable this Sept/Oct, but nothing much more than that. Would that even be enough to merit a brief test of the key 20 threshold? Perhaps, but Sept/Oct is a fair few months away, and for now, anyone trying to be long volatility is arguably just wasting their time, never mind the money.

Yours truly has not been long VIX since July 2016, and has little belief that a VIX-long trade is merited until at least late spring 2018.