This past week on RealMoney, Don Dion blogged about ETNs designed to track the VIX, Eastern Europe ETFs and Brazil.
VIX-Based ETN Correlations Are SkewedPosted 10/5/2009 5:20 p.m. EDT The iPath S&P 500 VIX Short-Term Futures Index ETN ( VXX) and iPath S&P 500 VIX Mid-Term Futures Index ETN ( VXN) didn't capture as much of last week's pop in the CBOE Volatility Index (a.k.a., VIX) as some traders may have liked. Between Tuesday and Friday, the VIX gained nearly 20%, but VXX only gained about 8%, while VXZ managed just 4%. On the flip-side, today's loss cost the VIX nearly 7%, but VXX shed 4% and VXZ fell less than 2%. One difficulty with the rolling futures contract is that the future never arrives. Options and futures have two components to their value:
- the underlying value of the security or index; and
- the time value.