There's the rub: VIX bets turn cash into vapor

There's the rub: VIX bets turn cash into vapor
Experts continue to foresee extreme volatility for equity markets. One small hitch: investors who've been placing VIX bets have seen their cash turn to vapor.
SEP 07, 2012
By  JKEPHART
Thursday's good economic news was bad news for investors who bet big on volatility last month. An upside surprise in private payroll data and the European Central Bank's announcement of an unlimited short-term bond purchasing program sent stocks soaring and the most popular volatility hedge to record lows on Thursday. The S&P 500 rose 1.9% to 1,430 by mid-day Thursday, its highest level since May 2008, on the news. The $2 billion iPath S&P 500 VIX Short-Term Futures exchange-traded note Ticker:(VXX), however, was down 7% and trading at an all-time low of just over $10 a share. The sharp drop comes after investors poured $703 million into the ETN in August, pushing its assets to $2.058 billion, the second highest total assets ever for the ETN. In September 2010 it topped $2.3 billion in assets, according to Lipper Inc. Sharp drops are nothing new for the ETN, which invests in short-term futures contracts tied to the Chicago Board Options Exchange Market Volatility Index, or VIX, the most popular measure of implied volatility. In fact, since the ETN was launched in January of 2009 at $400 a share, it's done nothing but steadily head downwards. A $10,000 investment at the ETN's inception would be worth approximately $250 today. Inexplicably, the ETN's performance hasn't dissuaded investors. Over the past three years, more than $5.8 billion has flowed into VXX, according to Lipper. 3-year performance of VXX Source: Morningstar Inc.

Latest News

Social Security trustees see one less year in insolvency countdown, project shortfall to start 2034
Social Security trustees see one less year in insolvency countdown, project shortfall to start 2034

New report shows dimmed outlook for benefits to retirees and disabled Americans, creating further pressure for federal tax hikes or more borrowing.

NY Republican Stefanik presses SEC to probe Harvard bond sale
NY Republican Stefanik presses SEC to probe Harvard bond sale

Open letter to SEC Chair Paul Atkins questions whether the Ivy League university withheld material information prior to its $750 million taxable bond offering.

Ex-LPL leader re-emerges at The Wealth Consulting Group
Ex-LPL leader re-emerges at The Wealth Consulting Group

The Las Vegas-based hybrid RIA overseeing $8.8 billion in assets has named Andy Kalbaugh president to help scale its advisor platform.

Envestnet extends investment offerings with new alts model portfolios
Envestnet extends investment offerings with new alts model portfolios

The wealth tech giant – in collaboration with Fidelity, BlackRock, State Street, and Franklin Templeton – is offering its advisor and wealth firm users more ways to diversify.

Just as wealth industry M&A was picking up, economic uncertainty could kill it again
Just as wealth industry M&A was picking up, economic uncertainty could kill it again

Deal volume increased post-election but now caution has taken over.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave