Investing in volatility ETN’s has been made extremely easy and can be done by an average investor without special software. To explain the concept of volatility ETN’s in detail in this blog is pretty much impossible, so this is just a quick overview. For the full story please watch this recording of my presentation from Wednesday the 1st of February. It shows some extraordinary results for 2016 which are continuing into 2017.
The VXX and XIV are Exchange Traded Notes (ETN) that may be used to trade up and downward movements in the VIX volatility index. The VIX index itself is not tradable. The VIX has a negative correlation to the S&P 500 which shows the market’s expectation of 30-day volatility. Volatility is mean-reverting, unlike stocks. So trading the VXX and XIV is based on market volatility, with returns not correlated with investments of stocks in general. That makes trading volatility based ETN a great additional strategy for long term investors looking for diversification and is perfect for SMSF accounts as well.
There is something unique which makes trading volatility based ETNs so brilliant. The primary engine of yield within VXX and XIV is roll yield. Roll yield is the yield that a futures investor captures when their futures contract converges to the spot price. In a backwardated futures market the price rolls up to the spot price, so the roll yield is positive, whereas when the market is in contango the price rolls down to the spot price, so the roll yield is negative (see Wikipedia).
Positive roll yield can capture abnormal gains for those investors who understand and can apply the concepts. There is a lot more to this story than can be conveyed in a blog article. For those investors looking for a way to enhance annual returns please follow the link below for a sixty minute recording which will offer a full explanation. The recording will cover the explanation of positive and negative roll yield, term structure and a complete investment process with no information withheld: https://attendee.gotowebinar.com/recording/7377488107303756290.
Questions welcome. paul@options21.com.au
