Why vxx goes down

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Follow DanCaplinger. A lot of people have been making this bet on low front-month volatility recently. That's why volume in the XIV has been heavy in the past few months. Here is a tougher question: why are VIX futures in such steep contango? Spot VIX is One reason: many of these volatility funds own those futures! As these funds get bigger, they have to roll over a higher dollar value of those futures, so they own more and more A second reason is that the market are expecting a lot of potentially volatile events in the coming months It's possible that if these events come with relatively little upheaval, VIX futures will flatten out, though they are unlikely to reverse and go into outright backwardation.

Volatility exchange traded funds ETFs and exchange-traded notes ETNs can sometimes offer interesting day trading opportunities, but there are other times when volatility ETFs should be left alone.

An ETF is a fund that trades on the stock exchanges and holds underlying assets in that fund. An ETN is an exchange traded note , which also trades on the exchanges, but is structured as a debt security and does not hold any assets.

ETFs, on the other hand, invest in assets—which track an index—and the value of those assets can deviate from the index itself. When divergences happen, it can create performance discrepancies between the performance of the ETF and the index it is supposed to represent. There are several volatility exchange traded funds to choose from, including inverse volatility ETFs. Day traders have two ways to profit:.

It then fell Such are the times that day traders will want to be trading VXX. During these times, it is not ideal for day trading. When this occurs, it lets you know which side of the trade you want to be on long or short.

Then, VXX broke its major support level just after 12 p. It did about 30 minutes later. During such times, the following entry and stop can be used to extract profit from the volatility ETN. The charts below provide an example. At a. At that same time, VXX top chart is well below its high and is forming a sideways channel highlighted by the rectangle on the chart.

Wait for a trade trigger. This is an event that actually tells you the price is starting to drop. Exit trades if you notice the overall trend in the market shifting against you. If you are short, a higher swing low or higher swing high indicates a potential trend shift.

If you are long, a lower swing low or lower swing high indicates a potential trend shift. Barclays would use this provision to redeem the VXXB notes early if the product became unprofitable for them to maintain. Betting on the future direction of stock market volatility can be a highly risky business, as evidenced by the experienced traders and speculators who got wiped out in February Investors who do not understand the complex risks, or who lack the capital cushion to absorb a complete loss in VIX-related products, probably should avoid them.

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