VIX and VIX ETN's in recent volatility (March 5th 2021)

5 mar 2021

Here's my understanding of recent volatility as it is reflected in the VIX index the and in the following ETN's. The most interesting part in my eyes is the recent behaviour of ETN's following the VIX.

VXX - is an ETN following short-term VIX futures, and therefore should follow VIX predictions in the near future.
VIXM - is an ETN following medium-term VIX futures, and therefore should follow VIX predictions in the near future.

Note the events which followed the GME scandal. The VIXM started rising before the recent increased volatility (peak on Feb 21st, just before increased volatility is reflected in the index and in VXX).
Currently, the VXX trades lower, while the VIXM still trades a bit high (but lower the the Feb. 21st peak).
My interpretation:

• In the upcoming week at least until VIX options expire on Wednesday, and perhaps for the rest of March, we’ll see reduced volatility.
  
• Since VIXM still trades higher (it currently holds VIX futures from May to August), the market predicts increased volatility at least until mid 2021, and it may worsen.
  
• Note that the volatility doesn’t correlate to a downfall at the S&P500 for now. For me this is a good sign, as it means the market can hold, and only all of the inflated SPAC, and IPO’s will crash
  

My personal take away:
1. Avoid speculative stocks at least until VIXM preforms worse than the VXX, and in any case not before mid April.
2. VIXM can provide a warning sign right before a volatile market.

6 mar 2021

Commento

Please comment your thoughts on my idea.