With the resolution of the fiscal cliff, the S&P 500 gained much needed support. However, investors remain cautious in the market as evidenced by the 1st to 2nd month VIX future term structure.
During 2013 to date (1/15), 2nd month VIX futures have remained in my opinion attractively above the 1st month VIX futures. This generates high roll costs as VXX maintains its one-month weighted average exposure.
Therefore, I plan to short VXX in an effort to generate profits as VIX futures roll.
Additionally, the 4th to 7th month VIX futures have been experiencing a steep upward slope, leading to a roll cost drag on VXZ. As a result, I will also plan to short VXZ in addition to my short VXX position.
The investments discussed are held in client accounts as of January 25. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
