Wednesday, December 09, 2009

The VIXEN's Young Daughter

Today I introduce a new variation of the VIXEN trade based on the countervailing dynamics of the VXX and the NYAD . . . the VXXEN.
The VIX was introduced in February 1986 while the VXX was born in February 09 so it really is a young thing that nevertheless displays respectable daily volume of about 2 M shares and spreads typically at .03, a bit more than I like, but as volume increases this may decline.
As I've mentioned before there is no option chain since this is an ETN (exchange traded note) . . essentially a derivative of a derivative.
One of the technical aspects of VXX that makes it attractive to traders is the beta value.
Comparing a brief list of relative betas (20 period) we note that SPY=1, QQQQ=.93, IWM=1.43, EEM=1.85, VIX=-5.00 and VXX=-2.65.
From an intraday perspective that makes VXX a viable trading vehicle although we should expect to modify some of our technical indicator settings (like the parabolics and the MAs) in order to keep up with the fast pace of this young lady.
Some readers have mentioned that they need more momo than the dimes and quarters that the VIXEN trades usually produce. Options that I've suggested before include the QLD in lieu of the Qs, or options, which is the route I prefer. This is another approach.
The chart above compares the same time frame trades on the Qs/VIX and the VXX/NYAD.
Time frame 13:50 - 14:24 -- Qs net $.18, VXX nets .39
Time frame 14:30 - 15:20 -- Qs net $.39, VXX nets .48 but it exits at 14:48, fully 30 minutes prior to the Qs exit.
The Qs underlying value is $44, while the VXX is $38, and simple math shows which one returns the greater %.
The other side of the beta coin is, well, beta . . and the volatility in the VXX chart versus the Qs shows this young lady can be a bit unruly at times, so be advised.
I'll babysit this setup for a couple weeks and report back on possible indicator resets.
As usual, reader input and feedback on this daytrading setup is always welcome.


QuantWizards said...

I'd like to hold her hand.

bzbtrader said...

Handholding is really what she needs at this point.