In the early going today in relation to Long Volatility products, we are witnessing “Day 3” of a move reflective of very rare “backwardation.” If we look at the largest “Long Vol” ETP VXX (iPath S&P 500 VIX Short Term Futures ETN, Expense Ratio 0.89%), it is up more than 4% this morning with spot VIX only up about 1%, and yesterday during the VIX’s sharp pull-back, VXX was only down about half that amount.
The same dynamic has been present these past three days in other prominent “Long Volatility” products like UVXY (ProShares Ultra VIX Short Term Futures ETF, Expense Ratio 0.95%), TVIX (VelocityShares Daily 2X VIX Short Term ETN, Expense Ratio 1.65%), VIXY (ProShares VIX Short Term Futures ETF, Expense Ratio 0.85%), and VIXM (ProShares Mid Term Futures ETF, Expense Ratio 0.85%) for example.
As most ETP market participants and followers know, “Long Volatility” ETPs have been much maligned for their tendency to trade in contango, as the VIX futures market itself is often mired in deep contango for prolonged periods of time.
One takeaway that we have noted in the past, perhaps on a continual basis is whether the end user loves them or hates them, the products have not gone away, and continue to not only attract investment assets and interest, but trading volume in some of these, especially in the last couple days, is astounding.
If we look at just VXX alone, it was among the most active across all ETFs and equities earlier this week on several occasions, trading over 100 million shares during more than one session, whereas the average daily volume in the product is about 63 million shares. Likewise, UVXY which averages about 11.2 million shares traded on a daily basis, has traded more than 20 million shares during more than one session this week.