Over the past decade, few ETFs have been as hated (or really, really hated and occasionally loved) as the VXX Volatility ETN. After the spectacular implosion of the inverse VIX ETN/ETF universe in February's 5-sigma VIXtermination event..
..the VXX emerged as the largest VIX exchange-traded product (ETP). However, it is far more memorable for the fact that since its inception ten years ago, VXX shares have lost over 99.9% of their value during the past ten years, with the current $40.11 share price corresponds to an initial price of $102,400 at initiation in 2009 (adjusting the initial $100 price for 1:4 splits in 2010, 2012, 2013, 2016, and 2017).
Yet while discouraging, Goldman's derivatives strategist Rocky Fishman writes that this strong negative performance needs to be viewed in the context of historically unfavorable conditions. Since the VXX was launched, the SPX has more than tripled, and volatility has fallen relentlessly, with 3-month SPX realized volatility lower than it had been in the previous 3 months 62% of the time – the highest frequency since the 1940’s. This led to steep volatility curves in much the last 10 years and a high cost of protection, which the subsequent downside failed to justify. Meanwhile, in moments of severe volatility the VXX has been a powerful hedge... one just had to time then.
What is more notable, is that 2018 is on pace to become the VXX’s first up-year, with its share price up 45% year-to-date. The SPVXSP, the index behind the VXX, had substantial full-year gains in 2008 and 2007 as well. On a shorter-horizon basis, the VXX share price doubled in each of the major volatility spikes of 2010, 2011, 2015, and 2018.
Yet all of the above will soon be moot: next month the VXX will cease to exist, because as Goldman reminds us this morning, next month, the VXX will finally be laid to rest when it reaches its long-scheduled maturity date.
To commemorate the VIX's imminent passing, the Goldman strategist fondly remembers its "hedging" abilities, writing that "even though the VXX has had strongly negative returns over its 10-year life, most of which was a historic S&P 500 bull market, this year has become another reminder of how powerful long volatility can be as a hedge."
More to the point, Fishman has published a Q&A which addresses next month’s maturity event, current ETP positioning, and the economics of unlevered long VIX ETPs.
Below we excerpt and highlights the key points from what will, in just a few weeks, be literally a VXX post-mortem.
1. What is happening to the VXX in January? Will the VXX continue to exist following the end of January?
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http://www.zerohedge.com/news/2018-12-11/january-29-vxx-will-cease-exist-what-means-market?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
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