written by reader Selling GOOG and buying VXX

By tanglewood, March 12, 2013

A writer on Seeking Alpha (name not given) was going to take his profits on GOOG and buy VXX in this article, dated March 7,2013.
Since I own GOOG, I was curious about VXX. This is the S & P 500 VIX short-term futures ETN (exchange traded note) issued by Barclays iPath on January 30, 2009. It has had two 4 for 1 reverse splits, one 11/9/2010 and another 10/5/2012. The split adjusted closing price on the first day of trading was 1673.28 and it is now trading at 21.05 for a nice juicy 98.7% loss.
Investors wishing to get informed on what the VIX is, here is a simple explanation from Wikipedia; ”The formula uses a kernel-smoothed estimator that takes as inputs the current market prices for all out-of-the-money calls and puts for the front month and second month expirations.[5] The goal is to estimate the implied volatility of the S&P 500 index over the next 30 days.
The VIX is calculated as the square root of the par variance swap rate for a 30 day term initiated today. Note that the VIX is the volatility of a variance swap and not that of a volatility swap (volatility being the square root of variance, or standard deviation). A variance swap can be perfectly statically replicated through vanilla puts and calls whereas a volatility swap requires dynamic hedging. The VIX is the square-root of the risk neutral expectation of the S&P 500 variance over the next 30 calendar days. The VIX is quoted as an annualized standard deviation.”
Wanting to get in on the action, on Jan 4, 2011, ProShares issued their VIX Short-Term Futures ETF (VIXY). It has a closing price of 79.23 on that day and is now 11.32 down 85.7%. On an apples to apples date comparison, this percentage is down about the same as the VXX mentioned above. The split adjusted closing price on Jan 4, 2011 for VXX is 145.32 and today it is 21.05 down 85.5 %.
What are we to take away from all of this? Are Barclays and ProShares rigging the game with sophisticated mathematical formulas? Are these meant to be day trading vehicles?

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.



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March 16, 2013 11:32 pm

I like that move a lot. However, I like selling some GOOG to buy AAPL instead. Vix is a tough trade with the Fed in the game so heavily. Whose to say that constant printing of money doesn’t hold volatility down for years? Don’t fight the Fed. The markets can remain irrational longer than we can remain solvent.
Why do I like AAPL. Even with slower growth – which I doubt sustains due to iWatch definitely coming and iTV probably coming – AAPL is simply cheaper, but about half, v GOOG. Not saying bail out of GOOG, but gains of past six months being put into AAPL at these cheap prices is a good move. Hedge funds are unwinding their AAPL shorts right now so it’ll pop pretty quick. I’ve made it 8% of holdings the past month.

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