Remember not that long ago when you could only trade volatility by actually trading options? Well, those dark days are a thing of the past as every financial institution known to man seems to have a volatility product they’d like to list. In the past week alone, we’ve had six offerings from Velocity Shares, one from Barclays PLC (NYSE: BCS), and one from UBS AG (NYSE: UBS).
It’s a little early to pass judgment on these VIX products, but let’s dig in anyway.
Velocity has added two “regular” VIX futures trackers: the VelocityShares VIX Short-Term ETN (NYSE: VIIX) and the VelocityShares VIX Medium-Term ETN (NYSE: VIIZ). These effectively duplicate Barclay’s popular iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) and iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VXZ). It’s hard to see how these new ETNs will gain any traction as money will likely be drawn toward VXX and VXZ’s liquidity.
Also from Velocity, we get the Inverse VIX Short-Term ETN (NYSE: XIV) and Inverse VIX Medium-Term ETN (NYSE: ZIV). The iPath Inverse S&P 500 VIX Short-Term Futures ETN (NYSE: XXV) already lets you trade inverse VXX, and it has not caught on among traders in a meaningful way. As an example, XXV volume today sits around 230,000 as I type this, versus over 12 million for VXX. The inverse medium-term ETN ZIV is at least unique in that we did not previously have an inverse VXZ product, but it’s unclear whether there’s actually any demand for it.
Finally from Velocity, we get a leveraged 2x Long VIX Short-Term ETN (NYSE: TVIX) and 2x Long VIX Medium-Term ETN (NYSE: TVIZ), which track double the inverse of Barclays’ VXX and VXZ, respectively. Now, if you don’t want to hold VXX for any duration, you REALLY won’t want to hold TVIX. If you do plan on using these juiced-up trading vehicles, please be extraordinarily careful.
Barclays joins the party with the iPath Long Enhanced 2x S&P 500 VIX Mid-Term Futures ETN (NYSE: VZZ), a double leveraged version (more or less) of VXZ. If it sounds just like TVIZ … that’s because it is just like TVIZ. But because Barclays created VXZ, it’s likely they’ll get the market share if this concept catches on.
VXZ is a better hold over time than VXX, but leverage has its own compounding issues over time. So if VXZ churns, VZZ and TVIZ will not please their owners. But they could be effective if you look at them as trading vehicles and not portfolio hedges.
Last, but certainly not least, we have the UBS E-TRACS Daily Long-Short VIX ETN (NYSE: XVIX). XVIX will seek to capitalize on the “contango drift” we often note in VXX by essentially going long medium-term VIX futures and shorting short-term VIX futures. UBS notes how well this play has done over the past year, and they’re right.
It’s worth mentioning, though, that VXX is not performing as poorly right now as it has in the past since near-term futures premiums have declined. It’s also worth noting that you could replicate this concept on your own by owning VXZ (long mid-term) and XXV (inverse short-term), or owning VXZ (long mid-term) and shorting VXX (long short-term), or via some other combo of the above ETNs.
Follow Adam Warner on Twitter @agwarner.
