Wednesday, January 15, 2014

It doesn't make any sense to use VIX products for short-term directional trading

I don't understand why some people keep using VIX products for playing locally. They go long UVXY for couple of days and think they've made something smart.

In fact, tight correlation between VIX and S&P 500 on a timeframe of couple of days makes any VIX product just a S&P 500 with a leverage, the difference is insignificant. For 30-day duration products like VXX the leverage is -4x, for double ETFs like UVXY, TVIX it's -8x.

Just use ES futures for this, you get 36x leverage and much better executuion costs

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