Thursday, December 22, 2011

Volatility getting crushed

What's happening with the volatility ... it has just been hammered during the last month even with markets going up and down like crazy.

Trading the VIX and the ETF/ETN related to it is very complex.  We have seen days this week where markets were down, spot volatility was up, and ETNs like VXX were going down severly.

When you trade something like VXX you have to follow the whole VIX curve to see if it switches from contango to backwardation.

Anyway even with the vol getting crushed I would suggest NOT to short the VIX at the moment because the correlation is just insanely high between instruments.  You'll see the vol spike back up in January 2012.

I would invite you to read more about the correlation index on the CBOE.




Cheers,

The Imperatore

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