Tag Archives: contango effect

VIX Index Gears Up For Accushares Overhaul-A Contango Cure?

MarketsMuse ETF “What’s Next?” update profiling 2 new market volatility trackers from AccuShares with a revised approach to VIX that seeks to mitigate the contango concerns and compares these pending products to the frequently discussed, but often misunderstood tracker CBOE Volatility Index. This post is courtesy of coverage from CNBC’s Bob Pisani, who tweets frequently via @BobPisani

Bob Pisani, CNBC
Bob Pisani, CNBC

There’s a potentially important new ETF launching next Tuesday, May 19th, which allows investors to invest in the well-known CBOE Volatility Index.

Will it do a better job of tracking the $VIX than other ETF and ETN products? The answer is likely yes, but there are some wrinkles.

The CBOE Volatility Index measures the intensity of put and call buying for the S&P 500 for a 30-day period and is often referred to as the “fear index.”

The new Volatility ETF is attracting more attention than usual because the brains behind it is Robert Whaley, the man who invented the VIX.

His company, AccuShares, will float two different VIX ETFs: 1) the Spot VIX Up Class (VXUP), which seeks to track the VIX over a one-month period, and 2) the AccuShares Spot VIX Down Class (VXDN), which seeks to track the inverse performance of the VIX over a one-month period.

cnbcWhy an inverse ETF? It has to do with how the ETF is structured.

Other ETFs exist to track spot indices—including commodities like oil—but they buy future contracts in their respective sectors. When the contracts expire, the next contract has to be bought, which greatly increases the cost of investing, since most future contracts are in contango, that is, the cost of the contracts further out are more expensive.

So you are usually buying high and selling low.

That creates tracking errors from the index. In other words, most investors find the investment they bought does not track the spot index they want to follow.

AccuShares is trying a different approach with this VIX product, and with other spot indices they will be launching in the near future. They hold cash and cash equivalents. Each ETF has an “up” asset class and a “down” asset class. Assets are swapped back and forth, depending on the increase or decrease in the spot price.

On the 15th of every month, everything is recalibrated. So you are essentially making a bet on where the VIX might be in the middle of the month.

With that said, there are a couple important details:

1)      This is not free. There is a management fee of about 90 basis points a year.

To continue reading Pisani’s in-depth analysis of this new product, please click here

 

Crude Oil, Contango and Confusion; Global Macro View

MarketsMuse provides below extracts from Feb 2 edition of Rareview Macro’s Sight Beyond Sight as a courtesy to our readers. The entire edition of today’s SBS newsletter is available via the link below.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Professionals Taking Move in Crude Oil Seriously…Concern Over Deeper Move Lower in Risk

  • No One Prepared for Deflation Risk to Subside
  • Left Tail Risk:  Removing Two Key Peg Break Conversations (for today)
  • China-Korea-Japan Battle – KRW/JPY Hedge
  • Switzerland – Update
  • Model Portfolio Update – January 30, 2015 COB:  -0.33% WTD, -0.88% MTD, -0.88% YTD

No One Prepared for Deflation Risk to Subside Continue reading