Inverse etf trading strategy
VIX futures are trading at the following prices:. Our ETN purchases 1, March contracts. One trading day comes and goes, which is a problem because we want to maintain a day exposure with our contract. We do this everyday. This makes sense because when March comes to an end, we are left with After the first day, our ETN sells The net effect is we now have Repeat this exercise 30 times and we end up with approximately April contracts after one month.
This is exactly the source of decay from which funds like VXX suffer. If we close our ETN fund after one month on March 30, no matter where VIX prices are on April 30 when we settle our contract, we will end up with less money than we had February 29 because we have lost contracts.
We will not get into further detail but this type of scenario occurs when the futures curve is upward sloping, with contracts further out costing more. This is frequently the case, as investors typically expect volatility to increase in the future the future is unknown. With an understanding of decay in mind, we think VXX is only appropriate for professional traders who are speculating on the direction of the market over a few trading days. However, one needs to have an ability to time these events properly and understand that the structure of these products is likely working against you in most environments time decay, diverging returns from the stated objective, etc.
The behaviour and portfolio construction methodology of products like VXX are also convoluted and we are reminded of the quote "Risk comes from not knowing what you're doing. In our opinion, the best way to protect the portfolio is a combination of things. Certainly increasing cash is a fine choice. Cash-like strategies also are a worthwhile consideration. Selling high and buying low like this is one way to leverage a bear market.
Typically, your broker will require you to leave half of the value of the stock you have shorted in your account in cash. Shorting stock is a little complicated and the charges on the loan made by your broker increases trading costs.
As an alternative there are leveraged ETFs that take care of the shorting for you. This simplifies the process of taking advantage of a bear market and avoids the margin charges from your broker. Short ETFs like this are not just limited to stock indexes; you can find them for industry sectors, commodities and even currencies.
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Any specific securities, or types of securities, used as examples are for demonstration purposes only. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should consider the investment objectives, charges, expense, and unique risk profile of an Exchange Traded Fund ETF carefully before investing. Leveraged and Inverse ETFs may not be suitable for all investors and may increase exposure to volatility through the use of leverage, short sales of securities, derivatives and other complex investment strategies.
Investors should monitor these holdings, consistent with their strategies, as frequently as daily. A prospectus contains this and other information about the ETF and should be obtained from the issuer. The Grail was said to be the cup of the Last Supper and at the Crucifixion to have received blood flowing from Christ's side.
It was brought to Britain by Joseph of Arimathea, where it lay hidden for centuries. Due to unprecented Market volatility we were in cash for 2 weeks early Feb. Then Gold was flat since Feb. As such they are effectively automated and not subjective. All the 3x-etfs we trade are identified in the Live Trading Room for Subscribers only. Unleash the amazing Power of 'Leveraging and Compounding'.