VIX vs VXX, UVXY, VXZ, XXV

VIX

• A measure of market expectation of S&P 500 volatility over the next 30 days
• Simply: it measures how much people are willing to pay to buy or sell the S&P 500
• If people are willing to pay more it represents uncertainty in the market
• Counter index: when the market goes down the VIX usually goes up (and quickly)
• A bullish outlook in the VIX is a bearish outlook in the market
• No Underlying, therefore cannot own
• Cash settled
• No bid/ask
• Different expiration dates
• Option premiums are based on a future price, not the current market price
• Future value is close to where the calls and puts are priced the same
• Never trade a calendar in the VIX, what you pay/risk up front is NOT what you can lose

VXX

• An exchange-traded note (ETN) that holds a long position in first and second month VIX futures contracts that roll daily
• Trades like a normal product since it has an underlying that you can own
• Same expiration dates as other equities
• Short-term, not buy-and-hold; long-term holders will experience time decay
• Be more aggressive when closing/rolling
• During periods of low volatility VXX often trades higher than it otherwise should (pricing in an expectation of increased volatility)
• During periods of high volatility it often trades lower than it should (pricing in an expectation of a return to lower volatility)

UVXY

• Trades like the VXX but is double leveraged (Ultra)

VXZ

• Structurally similar to the VXX, but it holds positions in fourth, fifth, sixth and seventh month VIX futures
• Much more a measure of future volatility and tends to be a much less volatile than the VXX

XXV

• Looks to replicate the performance of shorting the VXX