Here’s my volatility futures short strategy

Consistent with last month’s model commentary, I believe VIX futures’ 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 this year, the VIX futures term structure has remained steeply upward sloping. This generates high roll costs for VXX and VXZ as they maintain their mandated weighted average exposures.

As the 1st and 2nd month (Short-Term) VIX futures and the VIX index are coming up from near all-time lows, shorting VXX is a more attractive opportunity. As a result, I’m short VXX (VIX Short-Term Futures), but will also selectively hedge the short VXX position with a long VXZ position when the term structure flattens.

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The investments discussed are held in client accounts as of May 31st, 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.

Robert Zingale

About Robert Zingale

I have a passion for investing and have been actively managing my personal brokerage accounts since I was an undergraduate at Cornell University.Through my studies at Cornell, I realized that the only way to accurately statistically model an asset is to determine what the average price of that asset should be. I use VIX futures to implement my investment strategy, based on my valuation assumptions.