Here's my volatility futures short strategy
Consistent with last month’s model commentary, I believe VIX futures' high contango and roll costs are creating attractive short opportunities in Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures (VXX) and Barclays Bank PLC iPath S&P 500 VIX Mid-Term Futures (VXZ).
So far this year, the VIX futures term structure has remained steeply upward sloping. This generates high roll costs for VXX and VXZ as they maintain their mandated weighted average exposures.
As the 1st and 2nd month (Short-Term) VIX futures and the VIX index are coming up from near all-time lows, shorting VXX is a more attractive opportunity. As a result, I’m short VXX (VIX Short-Term Futures), but will also selectively hedge the short VXX position with a long VXZ position when the term structure flattens.
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