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).
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