Consistent with last month’s model commentary, VIX future’s high contango and roll costs are creating attractive short opportunities in Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures (VXX) and Barclays Bank PLC iPath S&P 500 VIX Mid-Term Futures (VXZ).
So far in 2013, 2nd month VIX futures have consistently remained 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 to attempt to generate profits as VIX futures roll. I will likely increase my short positions leading up to VIX future expiration dates and seek to profit from potential convergence on expiration.
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 short VXZ in addition to my short VXX position.
The investments discussed are held in client accounts as of February 14, 2013. 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.