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.
However, due to recent market volatility and potential future headwinds to a higher S&P 500 Index (SPX), I plan to just short VXZ to attempt to generate profits as VIX futures roll. By shorting mid-term VIX futures (VXZ), I seek to reduce the higher daily variance observed in short-term VIX futures (VXX).
Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.Market headwinds ahead. Here's my VIX futures trading strategy appeared first on Smarter Investing.
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