Here's my volatility futures short strategy

By Robert ZingaleCovestor

By Robert Zingale

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).

Continue Reading Below

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.

The investments discussed are held in client accounts as of May 31st, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

The post Here's my volatility futures short strategy appeared first on Smarter InvestingCovestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures.