Learning to Love a Cruddy Financial Product—VXX
04/10/2015 8:00 am EST
Andrew Giovinazzi, of OptionPit.com, shares his thoughts on short-term volatility in relation to the VXX futures, and given the Fed’s comments on Wednesday, what may get hurt as a result as well as the slightly in-the-money put play he thinks may still work out for option traders.
So the Fed came out Wednesday with the ball of confusion. Some want to raise and some do not. That is fair enough and I am starting to feel like the FOMC manages these messages to such a degree that not umbrage can be taken any party. They want things to be smooth. Since the Fed has more money than everybody else, they will win.
Since we are a volatility blog, I see the short-term volatility getting hit into the dust. The idea is simple. The VIX future premium is robust and it won’t last. That hurts products like VXX the most. VXX is ready to fall into the area of another reverse split if the volatility gravity keeps happening. My thought is that it will.
VXX is a junky product, but thankfully, it is predictably junky.
By Andrew Giovinazzi, Chief Options Strategist, OptionPit.com