With the CBOE Volatility Index (CBOE: ) hitting three year lows, there’s really a good argument to buy a volatility-something. I mean VIX can’t go to 0 … or really even 10 so fast. In fact we likely saw the lows … at least until summer.
And thankfully, we have an ETN to buy, the VXX! Or the iPath S&P 500 VIX Short- Term Futures (NYSE: ). And it hits all-time lows on a virtually daily basis.
Well, maybe not so thankfully.
The VXX has lost almost 94% of its value since listing in January 2009. And as we document periodically, it may just continue to dribble away forever, whether VIX makes new lows or not. The VXX tracks a hypothetical 30-day VIX future. To keep constant duration, it rolls shorter futures into longer one’s. When the shorter future trades at a decent discount to the longer one, VXX loses some coin on each roll. And guess what? With VIX itself closing at $15.77 yesterday, May VIX closed at $17.45, and June VIX closed at $19.55.Unless VIX itself picks up some steam here, VXX will keep losing money rolling out for a $2.10 hit, more or less.
InvestorPlace’s first Twittercast!Option Speculation the Smart Way
Thursday, April 28th at 1:30 p.m. EST
Featuring options expert Mark Wolfinger. Read Mark’s first article in his series “Speculating on Market Direction for One Stock.”
Please tweet your options questions using the hashtag anytime between Tuesday, April 18th and Tuesday, April 26th. Mark will be answering your questions live starting at 1:30 p.m. on Thursday, April 28th.)
This all doesn’t mean you shouldn’t buy volatility in some form now. Even in the VXX form. Just think of VXX like you would a regular put on the S&P 500 Index Option (CBOE:). Depending on the specifics, a put can win big if you catch it right. But if nothing happens, it will decay in a value a bit each day thanks to expiration getting closer. VXX decays too, but thanks to contango and not expiration.
There’s really no such thing as bottom fishing a decaying asset like a put or like VXX. But you can get nice directional wins. Is now the time? Who ever knows for sure. But I would keep an eye on it.
Follow Adam Warner on Twitter .
